Wed 22 Jul 2009
Picture du Jour: Coppock shows bottom in Treasuries
Posted by Prieur du Plessis under Investment, Markets, Money
Further to my post of yesterday, arguing that government bond yields have in all likelihood bottomed (see “Is the yield curve pointing to better tidings“), I have also analyzed the Coppock indicator for a longer-term perspective.
The Coppock curve is a long-term price momentum indicator used to recognize major bottoms in financial markets. For those who are mathematically minded, the indicator uses a monthly time scale and is the sum of a 14-month rate of change and 11-month rate of change, smoothed by a 10-period weighted moving average (see skyjuice for formula).
The market will typically reverse its trend whenever the Coppock curve reverses from an extreme low or extreme high. The graph below shows the historical relationship between the Coppock indicator and the US 10-year Treasury Note yield going back 20 years. A picture paints a thousand words …
Source: Plexus Asset Management (based on data from I-Net Bridge)
“You pays your money and takes your chance”, but it would seem as if the odds are stacked in favor of rising long-term interest rates for a while to come.
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July 22nd, 2009 at 1:08 pm
Where can you find this indicator? I can’t find it on stockcharts or marketclub or anywhere else for that matter.
Thank you.
July 22nd, 2009 at 1:12 pm
Kathryn: You’re right. It is not available on any of the charting packages that I know. I compute this myself - not only for long bonds but also for a number of other markets. I should perhaps create a section on the blog site where I can regularly update the Coppocks.
July 22nd, 2009 at 1:15 pm
The graph is quite self explanatory, but it also seems to show that the recent rise in yields may be done. I believe it is important to study the historical average rise in rates through these Coppock cycles. You may find that the majority of the move is already in.
July 22nd, 2009 at 1:24 pm
Carlos: I’ll be surprised for the move to be over so quickly. Most of the longer-term indicators have only just started turning up. Yes, the rise has been steep and we may see an extended bottoming-out formation (yield wise), but I foresee 10-year rates ultimately rising to challenge the 2007 high of about 5.25%.
July 22nd, 2009 at 3:31 pm
What does the Coppock look like on the major world stock markets?
July 22nd, 2009 at 6:47 pm
Bryan: As far as the S&P 500 is concerned, the Coppock is very low but has not turned yet. (The end-of-July number may show an upturn.) I will do a post on this over the next week or so.
July 23rd, 2009 at 6:54 pm
I wrote a Coppock Indicator for NinjaTrader. On my charts it indicates that the Coppock turned upwards while below zero, in about May. According to traditional reading of the indicator, that means that we have already started a new bull market.
While I tout NinjaTrader as the best free stock analysis package, I am in no way affiliated with them in any capacity other than as a user.
You can get my indicator free from http://www.ninjatrader-support2.com/vb/local_links.php?action=jump&id=160&catid=1
July 27th, 2009 at 9:31 am
Thanks Prieur, I do like these longer term indicators. They seem like the basis of a lower stress investing strategy. I have become interested in longer term weighted moving averages applied to simple moving averages as a way to identify trend changes on longer time scales but I’m just a novice.