Wednesday, May 7, 2014

XLB Coppock Guide: Bullish as of May Day 2014

The Materials Select Sector SPDR exchange-traded fund (XLB) ranked No. 4 by return among the ETFs that divide the S&P 500 into nine pieces during the first third of this year, as its adjusted closing share price progressed to $47.67 from $46.04, a yield of $1.63, or 3.54 percent.

Over this period, XLB’s return was a bit less than one-quarter that of the Utilities SPDR ETF (XLU) and a bit less than 1-1/2 times that of the SPDR S&P 500 ETF (SPY), as described in “XLU Coppock Guide: Bullish as of May Day 2014.” (XLU returned 14.74 percent, and SPY returned 2.41 percent.)

XLB is the fourth of 13 ETFs to be featured in a J.J.’s Risky Business blog series this month. Basically, I will be looking at each ETF with both eyes fixed on its Coppock guide, as was the case in “SPY Coppock Guide: Away From Bullishness, Toward Nonbullishness as of March 31, 2014.” The Coppock guide, aka either the Coppock curve or the Coppock indicator, is a long-term indicator of price movements in major stock-market indexes.

Figure 1: XLB And Its Coppock Guide, The Complete History

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Note: The XLB closing-value scale is on the left, and the Coppock guide scale is on the right.

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

Edwin S. Coppock developed his long-term guide 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 guide.

I anticipate XLB may rise after a bullish signal and expect it might do anything following a nonbullish signal (i.e., trade higher, lower or sideways).

Figure 2: XLB’s Behavior Subsequent To Initial Bullish Signals

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

The XLB Coppock guide’s initial bullish signals collectively have done an almost-perfect job in forecasting the future upward movements of the ETF on monthly closing bases. In 12 cases since November 2000, these signals have been correct on 11 occasions, or 91.67 percent of the time, and incorrect on one occasion, or 8.33 percent of the time.

The Coppock guide’s latest initial bullish signal flashed last June, when XLB’s closing share price was $37.77. Factoring in the one-month lag in the confirmation of any signal, I note the ETF’s closing share price advanced to the aforementioned $47.67 in April from $39.87 in July, which clearly constitutes bullish action by any standard.

Figure 3: XLB’s Behavior Subsequent To Initial Nonbullish Signals

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

The XLB Coppock guide’s initial nonbullish signals collectively have compiled a pretty mixed track record when evaluated on monthly closing bases. 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. Following the generation of 11 initial nonbullish signals since November 2000, the ETF’s share price has fallen on six occasions, or 54.55 percent of the time, and risen on five occasions, or 45.45 percent of the time.

Factoid o’ the Day: Five of the 11 XLB Coppock guide’s initial nonbullish signals have been produced in the merry month of May (in 2002, 2004, 2009, 2010 and 2013).

Coppock Guide: The Blog Series




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Author’s Note: This is the fourth blog post in a May series centered on the Coppock guides of 13 important ETFs, among them all nine Select Sector SPDRs. The first was cross-posted at both J.J.’s Risky Business and J.J. McGrath’s Instablog on Seeking Alpha, but the rest of the series will be posted here. You can follow me (and the series) @JJMcGrath3000 on Twitter, at JJMcGrath on StockTwits and via myself on Google+.

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.