COPPOCK Indicator: When to Enter or Leave the Market

13 April 2009

What is COPPOCK indicator?
The Coppock curve or Coppock indicator is a technical analysis indicator created by Edwin Coppock, first published in Barron's Magazine in 1962.
Edwin Coppock developed the Coppock Indicator with one sole purpose: to identify the commencement of bull markets. The indicator was devised for use on S&P 500 but is suitable for use on other market indices or averages.

How COPPOCK Indicator is Calculated?
The indicator uses a monthly time scale. It's the sum of a 14-month rate of change and 11-month rate of change, smoothed by a 10-period weighted moving average;

In formula:
COPPOCK= WMA[10] of (ROC(14)+ROC(11))

and in words:
1. Calculate the 14 month Rate of Change (of Monthly Price) for the index.
2. Calculate the 11 month Rate of Change (of Monthly Price) for the index. 3. Add the results of 1 and 2.
4. Calculate the 10 month weighted average of the results

Where Can I Find This Indicator For STI and DOW?
There is no known source that can give updates for COPPOCK indicator on STI and DOW. However, it is not too difficult to build this indicator in the metastock or similar kind of software using the following formula:

Mov((ROC(C,14,%)+ROC(C,11,%)),10,W)/100 (shown red in attached charts)

Another formula to express COPPOCK in smoothened mode

(Mov(ROC(Mov(C,14,S),11,%),10,E))/100 (shown blue in attached charts)

Interpretation of COPPOCK Curve
When the indicator was published in Barron’s (1962), it was suggested one should enter the market only when Coppock Curve started to reverse from an extreme low.
However, one will notice that market will reverse its trend whenever COPPOCK curve reverses from its extreme low or extreme high.

Other observations are:
a) The first COPPOCK reversal from extreme low is often followed by the highest COPPOCK reading (highest momentum); subsequent ones are usually followed by lower peak COPPOCK readings, indicating weakening or aging market.
b) The market will rise when the COPPOCK crosses above the COPPOCK smoothen curve; otherwise, the market will fall.

Best Time To Enter the Market?
According to the original interpretation, the best time to enter the market is when the COPPOCK curve (red) reverses from its extreme low. The DOW's COPPOCK curve is now suggesting that it is still not the right time to enter the market.


As for STI, the picture is about the same.

However, it is suggested that one should not just rely on one or two indicators to decide when to buy, sell, enter or leave the market. COPPOCK indicator may have given the correct signals so far but that does not always mean that COPPOCK curve will be able to give a precise timing.

Application of COPPOCK in Other Charts
COPPOCK suggested to use monthly charts for his COPPOCK curve. Many Analysts have attempted to use it for charts of different time scales. One example shown here is its application on a weekly chart of DOW.


The chart shows clearly that the COPPOCK has a signal to enter the market on 21 Nov 08 (red curve) but the market continued its fall until March 09. However, if one were to study DOW's weekly COPPOCK curve carefully, one could find that DOW will always rise when the red curve (COPPOCK) cross above the blue curve (the smoothened curve); similarly, the market will always fall when it crosses under. May be those crosses make more reliable signals.

Last updated: 14 April 2009; 15 April 2009

Disclaimer:
Information here is for sharing and learning. It is not intended to give any advice on any stock or movement or trend of any index. If a price or movement of a stock/index is given, it is only intended for illustration. The reader shall verify the information given here before using them.

1 comment:

ratu said...

thank you..very useful information.. :)