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The Coppock Curve - Can This Indicator Tell Us When We Hit A Stock Market Bottom?
By Joseph Meth on March 25, 2009 | More Posts By Joseph Meth | Author's Website
How will we know when the market actually hits bottom? Which indicators told us that the market had hit peaks in the past and can those same indicators tell us when we hit a bottom?
Those are questions that investors have been asking almost since the beginning. First there was Charles Dow who, through a long series of articles in his Wall Street Journal formulated what would later be called the Dow Theory. A Dow contemporary was Richard Wyckoff who, around 1907, “cobbled together his concepts in a less technologically sophisticated era (he strongly advocated careful “tape reading” to get a feel of market direction and momentum)”. I inserted a chart of Wyckoff’s principals in “A Selling Climax Behind Us?” written on November 24, 2008.
Another was Edwin Coppock who developed an indicator, later dubbed the Coppock Curve (or “Guide”). The Guide is not for short-term traders since it attempts to measure major turns in market momentum. As I wrote on January 8, I first ran across Coppock’s Curve while reading “Coppock Guide Update & Forecast for 2009″ at Trader’s Narrative and wrote: “As recently as July 27, 2007, Forbes.com ran a story based on the Coppock Guide that turned out to be fairly prescient and unfortunate because, believe it or not, the Coppock Guide was indicating a turn in market sentiment and momentum to the negative.”
So what does Coppock’s Guide indicate now? What does the Curve now say about the possibility of a turn in market momentum? Pictures (or charts) are worth a thousand words and the a chart of Coppock’s Curve is quite revealing:
The above chart uses the Coppock methodology, indicates that the Curve peaked in October, 2007, coincidentally with the top of the S&P 500 Index (^GSPC). I’ve also extrapolated what the Curve values might be if the S&P 500 Index is able to hold at approximately 900 through the end of May. Interestingly, the Curve hits a low in April and begins to turn up in May.
So long as there’s no further deterioration in the market, and the S&P 500 Index can hold current levels for the next 60 days, there’s a convergence of indicators that will point to a positive signal at that time that it will be “all right to get back into the pool”. Among those indicators are the Coppock Curve, the 200-day Moving Average crossover, my MTI, and the long-term reversion to the mean chart.
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Joseph, you seem like a nice, well meaning man but I see two big problems with your analysis:
1. Your reversion to the mean chart starts right after the biggest bear market ever, skewing it terribly. I, and most stock market historians believe fair value for the DJIA to be around 6500, give or take 1,000 points. That suggests we have much farther to fall as do valuations, which should fall close to historic lows.
2. You regularly quote Cramer the clown. You need to watch the interview Jon Steward did with Cramer that exposed Jim Cramer for the liar and criminal that he is.
The Coppock Curve is a great tool but it won’t turn up yet and basically saying it has when it hasn’t puts you in the camp of all those who fed the sucker’s rallies in 1930, 1931 and 1932. Don’t do it, Joe.
Stock Market Man, or may I call you Fred, you seem to be a too serious man, just one more of those Perma-Bears, those eternal pessimists who anxiously await and long for that day you feel you’ve dreamed of your whole life when you’ll finally sit atop of your world and rule it with your stash of gold.
Even though you offer the bubonic plague as your proof and precedent, you unfortunately ignore the fact that the world, while it sees its history repeated, does move on and progress. Humanity does learn from the past so that the future is never quite the same as that past.
So if there are “fools”, they are the ones who don’t factor human behavior, growth and optimism into their expectations of the future.
By the way, since you obviously aren’t a regular reader of my blog, http://www.stockchartist.blogspot.com, you’d know that I never quote Cramer favorable, have coined the successful and profitable “conter-Cramer trade” and opened the March 13 posting to my blog with his interview with Jon Stewart.
Stock Market Man you seem to not know what you’re talking about. It’s now September and the Coppock was correct.