Article Reviews, Terminology, Thoughts, Trading

Market Timing Using The Coppock Curve Indicator

One of the many indicators used for market timing is the Coppock Curve. You can get that from StockCharts.com and FreeStockCharts.com. The StockCharts.com school has a good article about the Coppock curve here. I would just add my own observations about using the indicator.

Construction

  • 10-period Weighted Moving Average of (14-period Rate of Change + 11-period Rate of Change)
  • The Weighted Moving Average here is a linearly weighted moving average with more weight given to the more recent prices.
    • For example, a 3-period WMA would be calculated as (Close current period * 3 + Close 1 period ago * 2 + Close 2 periods ago * 1) / (1 + 2 + 3)
  • The Rate of Change is simply (Close – Close n periods ago) / (Close n periods ago) * 100

Signals

  • Go long when the Coppock Curve crosses the zero line from below (i.e. from negative to positive).
  • Go short when the Coppock Curve crosses the zero line from above (i.e. from positive to negative).

Application

  • This is applied on the monthly S&P 500 bars.
    • I looked at how it would apply on weekly and daily S&P 500 bars. Basically the signals would be way too late, and you will be whipsawed by the many crossovers.
    • If you look at the Coppock Curve on the daily bars, it looks almost exactly like the S&P 500, so I do not find that useful.
  • The Wikipedia page notes that the Coppock Curve is not suitable for commodity markets because the commodity market bottoms are more rounded more to more spiky for stocks.

Performance

  • The signals lag the market tops and bottoms by about 9-12 months.
  • Even so, considering the 2-3 year duration of the bear market from the market top, it would have kept you out of the worst declines for the dot-com crash and GFC, and gotten you back into the market about 9 months after the bottom.
  • Hence this indicator is slow, but very conclusive. If the signals occur, and you have not yet positioned yourself accordingly, that is your last chance.

-END-

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