Thursday, May 15, 2014

XLF Coppock Guide: Nonbullish as of May Day 2014

The Financial Select Sector SPDR exchange-traded fund (XLF) ranked No. 8 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 inched higher to $21.96 from $21.78, an increase of 18 cents, or 0.83 percent.

Over this period, XLF’s gain was a small fraction of the return of the Utilities SPDR ETF (XLU) and about one-third 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.)

XLF is the eighth of 13 ETFs featured in a J.J.’s Risky Business blog series this month. Basically, I have been 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 calculated on the basis of monthly data.

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

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Note: The XLF 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 constructed 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 XLF 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: XLF’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 Coppock guide’s initial bullish signals for XLF have compiled a more anemic forecasting record than the guide’s initial bullish signals for any other Select Sector SPDR, as they have done neither better nor worse than a series of coin flips would have done in predicting the future upward movements of the ETF on monthly closing bases. In 10 cases since November 2000, these signals have been correct on five occasions, or 50.00 percent of the time, and incorrect on five occasions, or 50.00 percent of the time.

Figure 3: XLF’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.

In contrast, the XLF Coppock guide’s initial nonbullish signals have compiled an extremely interesting track record over the years. Keeping in mind a nonbullish signal is not equivalent to a bearish signal, the 10 initial nonbullish signals since November 2000 have been followed by the ETF’s share price on monthly closing bases declining on eight occasions, or 80.00 percent of the time, and advancing on two occasions, or 20.00 percent of the time.

The XLF Coppock guide’s latest initial nonbullish signal flashed in December, when the ETF’s closing share price was $21.78. Subsequently, the comparable figures were $20.98 in January, $21.62 in February, $22.34 in March and $21.96 in April. Therefore, the action in the market appears to have been pretty nonbullish to me, even though it is still an open question as to whether XLF will fall or rise on a monthly closing basis in the wake of this most recent signal.

Coppock Guide: The Blog Series








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Author’s Note: This is the eighth 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.