Coppock Curve November 2011 Update

Fool me once, shame on - shame on you. Fool me - you can't get fooled again.
~George W. Bush


Although the Cheetum Market Indicator (CMI) does not use either of these signals to determine market direction, the long term "convincers" of a major market move are the Coppock Curve and the Cheetum Curve.

This recent update to the Coppock Curve shows a continuing downward trend although changes in direction for this curve are far more useful when they swing up from the bottom.



The Cheetum Curve (not related to the CMI) is beginning to tell a scary story of a market that may be on the decline in a big way contrary to recent market action. The red line has crossed below the lower blue horizontal line. You can see what happened last time it crossed this line back in late 2007, early 2008.



A refresher on using this signal is outlined below.

1. A cross of the red ROC line over the black moving average line from below when both lines are below the lower blue horizontal line triggers a 'buy' signal.

Solid confirmation occurs when both the red and black lines cross through the zero line and then continue above the upper blue line. A reversal of the red line prior to crossing through the 'zone' would trigger a sell signal as noted by the yellow arrow.

2. A cross of the red line below the bottom horizontal blue line triggers a 'sell' signal. The black moving average line is not used as an indication of a sell.

3. If the lines are in the 'zero' zone (between the blue horizontal lines, continue with the previous trend. In other words, if they are in the zone, leave 'em alone.

Coppock Curve September 2011 Update

Although the Cheetum Market Indicator (CMI) does not use either of these signals to determine market direction, the long term "convincers" of a major market move are the Coppock Curve and the Cheetum Curve.

The Coppock had given a signal last May and continued its downward progression recently although the downtrend signals have been only 50% accurate over the years.

The 80% accurate buy signal (lines upturning below the zero line) should get more attention. The real 'Coppock action' starts below the zero line as the indicating line starts its swing upward.



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The Cheetum Curve is diving towards the lower horizontal blue line but no major downtrend has been confirmed yet. A refresher on using this signal is outlined below.



1. A cross of the red ROC line over the black moving average line from below when both lines are below the lower blue horizontal line triggers a 'buy' signal.

Solid confirmation occurs when both the red and black lines cross through the zero line and then continue above the upper blue line. A reversal of the red line prior to crossing through the 'zone' would trigger a sell signal as noted by the yellow arrow.

2. A cross of the red line below the bottom horizontal blue line triggers a 'sell' signal. The black moving average line is not used as an indication of a sell.

3. If the lines are in the 'zero' zone (between the blue horizontal lines, continue with the previous trend. In other words, if they are in the zone, leave 'em alone.

Related posts here.

Cheetum Curve Update (3/11)

At the end of the month, I'll post the current Coppock Curve. In the meantime, I have whipped out the Cheetum Curve to get some long-term perspective on the market. Neither one of these curves will predict anything even though they can be strong confirmation on the long trend...the very long trend.

This indicator is not related to the CMI buy/sell signals used to trade the QLD and QID although overall results improve when the short term direction (CMI) 'syncs up' with the long term direction (Cheetum Curve)...as it should.




Here's a refresher for the Cheetum Curve from a previous post:

How do you determine buy and sell? Glad you asked. The rules are simple as long as you are not color blind:

1. A cross of the red ROC line over the black moving average line from below when both lines are below the lower blue horizontal line triggers a 'buy' signal.

Solid confirmation occurs when both the red and black lines cross through the zero line and then continue above the upper blue line. A reversal of the red line prior to crossing through the 'zone' would trigger a sell signal as noted by the yellow arrow.

2. A cross of the red line below the bottom horizontal blue line triggers a 'sell' signal. The black moving average line is not used as an indication of a sell.

3. If the lines are in the 'zero' zone (between the blue horizontal lines, continue with the previous trend. In other words, if they are in the zone, leave 'em alone.

Obviously, with only eight signals triggered in the last 20 years, this oscillator is only useful for those who are looking for an extended time frame. Let's see if these rules hold up over the next few months. If that red line drops like a rock through the bottom blue horizontal line, I'll have my finger on the sell button.

I still give equal weight to buy and sell signals with the Cheetum Curve but tend to believe only buy signals from the Coppock Curve. Again, to repeat myself, the tide will have already turned (buy to sell and vise versa) before these types of indicators change direction.

Related posts:

Coppock Curve Cheetum Curve Unite

Coppock Curve Has Spoken

Price Earning Ratio as Leading Indicator

Coppock Curve, Cheetum Curve Unite!

Once in a while I check in on the status of the Coppock Curve, and the monthly rate of change indicator that I refer to as the Cheetum Curve. Both of these indicators are updated monthly and are supposed indicate major reversals in market direction. Major reversals will usually have already started so if you are on wrong side of the signal, its probably time to change direction. Details regarding these curves can be found by clicking on the hyperlinks above.



As I had stated before, the Coppock Curve does not give very accurate sell signals, so I tend to ignore those. Sell signals are indicated by a downturn above the zero line whereas buy signals are indicated by an upturn below the zero line. The Coppock chart shown here covers only two years so you can see that signals occur about as often as a lunar eclipse.

As for the experimental Cheetum Curve, (not to be confused with the shorter term, QLD-QID swapping Cheetum Market Indicator) sell signals are indicated by a cross of the red line below the lower blue horizontal line. No real danger of a massive market meltdown in sight yet according to this chart. Buy signals are indicated by a cross of the red line above the black line when they are below the horizontal lines.



Again, both indicators usually serve as confirmation that the market has changed direction. Coppock produces buy signals more accurately than sell signals. The recent downward trend of the Coppock curve could be considered an early signal of a short-term market retracement but historically this has been useful only about half of the time, whereas buy signals have been about 80% accurate.

Price/Earning Ratio as a Leading Indicator?

The price/earning ratio is defined as a valuation ratio of a company's current share price compared to its per share earnings.

For example, if a company is currently trading at $20 a share and earnings over the last 12 months were $1.15 per share, the P/E ratio for the stock would be 17.39 ($20/$1.15).

Since these ratios fluctuate and are tracked as an average for the indices, it would be interesting to see if there is any a way to use this data to predict future movements of the S&P 500.

Using monthly data for the S&P, I placed the month-to-month P/E data on a chart along with an overlay of the S&P prices going back 20 years. The data followed price for the most part except for a stretch of years between 2004 and 2008. Nothing too predictive here. Not satisfied with those results, I then applied a basic 12 month rate of change formula and smoothed that with a 6 period moving average.

Take a look at the following chart...



The light blue line at the top represents the S&P price data over the 20 year period. At the bottom, the red line represents the 12 month rate of change results using the monthly P/E data.
The smoother black line represents the 6 period moving average of the rate of change line.
The two blue horizontal lines indicate the high and low limits of the "zero" zone. This zone eliminates all that noise around the zero line.

How do you determine buy and sell? Glad you asked. The rules are simple as long as you are not color blind:

1. A cross of the red ROC line over the black moving average line from below when both lines are below the lower blue horizontal line triggers a 'buy' signal.

Solid confirmation occurs when both the red and black lines cross through the zero line and then continue above the upper blue line. A reversal of the red line prior to crossing through the 'zone' would trigger a sell signal as noted by the yellow arrow.

2. A cross of the red line below the bottom horizontal blue line triggers a 'sell' signal. The black moving average line is not used as an indication of a sell.

3. If the lines are in the 'zero' zone (between the blue horizontal lines, continue with the previous trend. In other words, if they are in the zone, leave 'em alone.

Obviously, with only eight signals triggered in the last 20 years, this oscillator is only useful for those who are looking for an extended time frame. Let's see if these rules hold up over the next few months. If that red line drops like a rock through the bottom blue horizontal line, I'll have my finger on the sell button.



Historical S&P P/E data provided by Robert J. Schiller, PhD.