Tuesday, May 13, 2014

XLI Coppock Guide: Nonbullish as of May Day 2014

The Industrial Select Sector SPDR exchange-traded fund (XLI) was No. 7 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 climbed to $53.03 from $52.03, a gain of $1.00, or 1.92 percent.

Over this period, XLI’s return was a little less than one-eighth that of the Utilities SPDR ETF (XLU) and about four-fifths 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.)

XLI is the seventh 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 equity-market indexes calculated on the basis of monthly data.

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

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Note: The XLI 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 XLI 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: XLI’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 XLI Coppock guide’s initial bullish signals collectively have done a fair job in forecasting the future upward movements of the ETF on monthly closing bases. In 11 cases since November 2000, these signals have been correct on seven occasions, or 63.64 percent of the time, and incorrect on four occasions, or 36.36 percent of the time.

The XLI Coppock guide’s latest initial bullish signal flashed in June 2012, when the ETF’s closing share price was $34.37. Factoring in the one-month lag in the confirmation of any signal, XLI’s closing share price soared to $51.83 in February 2014 from $34.50 in July 2012, which clearly constitutes bullish action by any standard.

Figure 3: XLI’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 XLI Coppock guide’s initial nonbullish signals collectively have built an interesting track record since November 2000. Again, it is important to keep in mind a nonbullish signal is not equivalent to a bearish signal in the context of the Coppock guide. After the generation of 11 initial nonbullish signals over the years, the ETF’s share price on monthly closing bases declined on six occasions, or 54.55 percent of the time, and advanced on five occasions, or 45.45 percent of the time.

The XLI Coppock guide’s most recent initial nonbullish signal was produced in March, when the ETF’s closing share price was $52.33. Because of the one-month lag in the confirmation of any signal, it is too early to tell whether the ETF’s share price will rise or fall on a monthly closing basis, but the historical tendency is the historical tendency.

Coppock Guide: The Blog Series







Related Reading



Author’s Note: This is the seventh 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.