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.
- 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
- 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).
- 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.
- 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.