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Posted by TTHQ Staff - 06-30-09 12:04 - 0 comments
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The Coppock indicator, developed over a half century ago by Edwin Coppock, is a lagging indicator but, when triggered, has a very respectable history of isolating long-term equity market lows (a “buy” signal is generated when the indicator falls below the “0” line and then turns higher). We traced the first “buy” signal back to 1918. Since then, there have been 18 correct signals and only three false ones. This indicator moves very slowly (it is essentially a longterm momentum indicator), but it helps to determine when the market has gone too far based on bearish (fear) psychology. It does not issue very many signals; thus, we take note when something emerges on the Coppock charts. Generally, the deeper the decline on the indicator, the stronger the bullish signal. The 2008 trough was as deep as the Coppock had been since 1938.
In addition to the Coppock, we are resposting the long-term momentum chart that depicts the oversold extremes reached last year. While it upticked slightly in June, it reached extremes in 2008 that had been reached only four times previously beginning in 1903. Historically, 1903, 1915, 1932 and 1974 were significant lows that held on subsequent retests.
Figure 3: Long-term chart of the DJIA. From Barclays capital.