“A widely watched indicator that has worked 16 out of 17 times in the postwar era has sent a buy signal,” says David Wilson on Bloomberg.com. The Coppock indicator was developed by economist Edwin Coppock in the 1960s when the Episcopalian church asked him to develop a tool to spot long-term buying opportunities.
The indicator is based on the difference between an index’s value at the end of a month and an average of its closes 11 and 14 months earlier. He had been told that mourning periods last 11-14 months and thought the shock of a bear phase was comparable to bereavement.
The buy signal confirming that an upward trend is underway comes when the indicator is below zero and turns upwards, which it has now done for the S&P 500 for the first time in six years.
Stocks don’t need a buoyant climate to rise
Pessimists are worried that the market has raced ahead even though there has been scant improvement in the economy, says David Schwartz in the FT. Yet “economic and stockmarket cycles do not always march hand in hand”.
A 60% market slump troughed close to the start of World War II, and despite the impending economic crisis shares began to rise in the mid-1940s. Shares rocketed by 135% in 1975 after a 73% slide, even though the economic news remained grim.
On these occasions the most likely explanation was that “all nervous investors had finally liquidated… there were no more sellers”.