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While we were in the thick of the 2008 bear market, I looked ahead and provided a road map for the conditions of a new bull market. Among them was the Coppock Guide.
At the beginning of the year I provided a hypothetical projection to demonstrate that the stock market would have to go on one hell of a bullish rampage to pull the Coppock Curve up from its death spiral. A few months later, a rally that almost no one foresaw took us 40% higher.
Then at the beginning of May, I reiterated that a Coppock buy signal would be arriving by the end of the month, as long as the market held it together and didn’t fall any further.
Well, we are finally here and the Coppock guide has provided a definitive signal by turning up - this is the buy signal that we had been anticipating:
I know, I know, it is impossible to see on the chart but believe me, it is there. To see a zoomed in view of the chart, check out the previous links. The S&P 500 Coppock Curve stopped going deeper into negative and actually increased from -417 at the end of April to -409 at the end of May 2009. All it would have taken was a one point increase but we got 8 points.
Now that we have a signal, what does it mean?
Well, obviously, it means we have the wind at our backs. The Coppock Guide has been a reliable indicator of the long term market trend. But, like everything else, it isn’t full proof - as you can see from the false signals. So with that in mind, here are three major observations:
First: The signal isn’t just for one index or market. We are seeing the Coppock Curves for many different markets around the world turn up at the same time. The Australian All Ordinaries, the Nikkei, the FTSE and all 3 major US market indexes: S&P 500, Dow Jones Industrial and the Nasdaq.
While most of the signals are occurring concurrently, some like the (Chinese) Shanghai market and the Nikkei gave signals last month. Check out all the major world markets to see how just how much confirmation we are getting from them.
Second: Valid signals are those that turn up from under the zero line. And historically, the deeper the level at which the signal arrives, the more strength the following bull market has. This most recent signal is coming from a deeply oversold level - the most since 1938 (-417 to -400) and even further, 1932 (-643 to -616).
Of course, that doesn’t mean that from now on the market has only one direction - up! Based on the sentiment and technicals covered before (Wedge Formation), I think it is probable that we will head down, but won’t break the previous low. This will allow for the long term moving average to flatten out and begin to support, rather than hinder prices from going higher.
Third: Although the Coppock Curve has given its share of false signals, we haven’t seen any occur when the metric has curled up from such a deeply negative level. There are very few examples of this, so it is difficult to extrapolate a rule but so far, this has been the case.
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