Thursday, May 29, 2014

Coppock Guide to SPY and 12 Other Big-League ETFs: Signal History and Status

The Coppock guide is among my favorite long-term indicators of price movements in major equity-market indexes, which accounts for the recent J.J.’s Risky Business series of blog posts centered on the guide’s past relationship and present status in association with each of 13 big-league exchange-traded funds.

Edwin S. Coppock introduced his guide, aka either the Coppock curve or the Coppock indicator, in Barron’s more than half a century ago. He designed it not to flash both bullish and bearish signals but to generate only bullish signals. However, I employ it to produce either bullish or nonbullish signals.

It is extremely important to keep in mind that a nonbullish signal is not equivalent to a bearish signal in the context of the Coppock guide as I use it. I anticipate a given index and its derivatives may rise after a bullish signal and expect it might do anything following a nonbullish signal (i.e., trade higher, lower or sideways).

Accordingly, I couple my employment of the Coppock guide with the use of another of my favorite long-term indicators of price movements in major stock-market indexes, namely, the comparison of a given index’s most recent monthly closing price with its 10-month simple moving average.

As is widely known, this market-timing model is the centerpiece of Mebane Faber’s “A Quantitative Approach To Tactical Asset Allocation.” I will be blogging about my adaptation of this model in relation to each of the 13 ETFs mentioned in my Coppock guide series of blog posts as we get closer to the overall market’s inflection point.

Meanwhile, I have here for each of the 13 ETFs in the Coppock guide series its current signal (i.e., either bullish or nonbullish) and a link to the relevant blog post about it. These data are followed by a couple of charts displaying the historical performance records of the Coppock guide’s signals with respect to these ETFs.

Utilities Select Sector SPDR Fund

Energy Select Sector SPDR Fund

Health Care Select Sector SPDR Fund

Materials Select Sector SPDR Fund

Consumer Staples Select Sector SPDR Fund

Technology Select Sector SPDR Fund

Industrial Select Sector SPDR Fund

Financial Select Sector SPDR Fund

Consumer Discretionary Select Sector SPDR Fund

IShares Core S&P Small-Cap ETF

SPDR S&P MidCap 400 ETF

SPDR S&P 500 ETF

PowerShares QQQ

Figure 1: ETF Behavior After Coppock Guide’s Bullish Signals

 photo 0041-Figure1-580-Correx_zpsc3f14f0e.png

Source: This J.J.’s Risky Business chart is based on proprietary analyses of Yahoo Finance adjusted monthly share-price data.

Measured by their Coppock guide initial bullish signals since inception, XLU has been hot, while XLF has been not. In predicting future upward movements in share prices on monthly closing bases, the initial bullish signals for the former ETF have been absolutely perfect and the signals for the latter ETF have been absolutely imperfect.

Figure 2: ETF Behavior After Coppock Guide’s Nonbullish Signals

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0041-Figure2-580-Correx_zpsdda873e0.png

Source: This J.J.’s Risky Business chart is based on proprietary analyses of Yahoo Finance adjusted monthly share-price data.

Again, it is extremely important to keep in mind that a nonbullish signal is not equivalent to a bearish signal in the context of the Coppock guide as I employ it. Nonetheless, the Coppock guide initial nonbullish signals for XLE, XLU and XLF collectively have compiled pretty interesting historical performance records since inception.

Because the Coppock guide is calculated on the basis of monthly data, I will be recrunching all the relevant numbers following the market close on Friday.

Correction: This recrunching of the relevant numbers allowed me to detect a data-download error associated with MDY, which in turn enabled changes in this article’s graphics and their related text: See SPDR S&P MidCap 400 ETF (MDY) Coppock Guide: Nonbullish as of May Day 2014.

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Author’s Note: This blog entry is being cross-posted at both J.J.’s Risky Business and J.J. McGrath’s Instablog on Seeking Alpha.

Disclaimer: The opinions expressed herein by the author do not constitute an investment recommendation, and they are unsuitable for employment in the making of investment decisions. The opinions expressed herein address only certain aspects of potential investment in any securities and cannot substitute for comprehensive investment analysis. The opinions expressed herein are based on an incomplete set of information, illustrative in nature, and limited in scope. In addition, the opinions expressed herein reflect the author’s best judgment as of the date of publication, and they are subject to change without notice.