russell and the coppock

  1. 12,933 Posts.
    lightbulb Created with Sketch. 73
    The para below is clipped from last night's Russell report. I thought his discussion of the coppock indicator was interesting. This indicator is present in EzyChart and Metastock but i've not really used it except to play with it in a moment of idleness. Maybe sometime to day I'll run it over XAO but meantime are there any coppock experts out there that have already done this? It would be interesting to see what they think it indicates...


    OK, now on to May 6. And enter the Coppock Guide. The what? The Coppock Guide. And here's the story.

    Back in the '60s there was a very good investment service called Trendex. I followed it for years. Trendex was written by a brilliant stock market analyst named E.S.C. "Sedge" Coppock. Sedge wrote an article for Barron's pointing to a new device or formula which identified low-risk buying areas.

    The Coppock Guide was a lagging indicator, but it was also a very valuable indicator. It's based on a complex formula using rates of change in the Dow plus a weighted moving average.

    The Coppock Guide is only used for identifying buying areas -- not selling zones. When the Guide drops below zero and then turns up, that's the "signal" that the market is in what Coppock termed a "low-risk buying area."

    I followed Sedge Coppock's work for many year via his Trendex service out of Texas.

    There have been many signals based on the action of the Coppock Guide, and over the years there have not been many false signals. I'll give you some examples of the Guide's signals and the subsequent Dow gain in percentages.

    Signal at the end of August, 1949 -- Dow gain 61%.

    End of December 1953 -- Dow gain 85%

    End of December 1962 -- Dow gain 54%.

    End of August 1970 -- Dow gain 36%.

    End of April 1978 -- Dow gain 23%.

    End of August 1982 -- Dow gain 41%.

    End of December 1984 -- Dow gain 128%.


    Like every technical device ever invented, the Coppock Guide has given some false signals. These false signals occurred in 1930, 1938, 1941, 1947 and 2001. Note, however, that all these false signals occurred during bear markets. And we're in a bear market now.

    In the market rebound following 9/11 the Coppock Guide was below zero and it turned up, which gave us a low-risk buying area signal. That proved to be a rare false signal.

    But this year the Guide was again well below zero -- at the end of April (last month) the Guide turned up from below zero providing a "low risk buy signal." The Guide has turned up very slightly, but a projection (courtesy of InvesTech Research (406 862 7777) shows that the Guide will be even higher by the end of this month of May.

    So the question -- will this latest "signal" be another false signal? There's no way of knowing, but my instinct (guess) is that this latest signal could be the real deal. At any rate, following any weakness or correction ahead, it might pay us to take speculative positions on the bull side of this market. I'll obviously be writing more about this situation as we go along.

    Near-Term -- I've been writing that the market is now very over-bought. The McClellan Oscillator is in its seventh week above zero, and it seldom goes beyond eight weeks without a return below the zero line. When the Oscillators is below zero it means that the majority of NYSE stocks are in downtrends, and the consolidation or correction is in force. How the market acts when the Oscillator finally drops below zero will tell us a lot about the basic strength or weakness of this market.

    Lowry's data (now bullish) confirms that the market is in an overbought state.

    The Investor's Intelligence poll shows that advisory bulls currently stand at 48.3% while bears are down to 29.2%.

    The VIX has been fluctuating around a low 23%.

    All of this suggests that some kind of consolidation or correction lies ahead.

    And frankly, I'm fascinated to see HOW the market acts once the McClellan Oscillator sinks below the zero line. By the way, subscribers to decisionpoint can follow the action of the McClellan Oscillator daily, but I do report the level of the Oscillator each day on this site

 
arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.