Saturday, May 17, 2014

XLY Coppock Guide: Nonbullish as of May Day 2014

The Consumer Discretionary Select Sector SPDR exchange-traded fund (XLY) was No. 9 (meaning dead last) 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 dipped to $63.84 from $66.62, a drop of -$2.78, or -4.17 percent.

Over this period, XLY’s negative return compared (unfavorably) with the positive returns of the Utilities SPDR ETF (XLU) and 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.)

XLY is the ninth 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: XLY And Its Coppock Guide, The Complete History

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Note: The XLY 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 built 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 XLY 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: XLY’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 XLY 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.

Figure 3: XLY’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 XLY Coppock guide’s initial nonbullish signals collectively have compiled an interesting track record since November 2000. As customary, it is important to keep in mind a nonbullish signal is not equivalent to a bearish signal in the context of the Coppock guide. In the wake of 11 initial nonbullish signals over the years, the ETF’s share price on monthly closing bases fell on seven occasions, or 63.64 percent of the time, and rose on four occasions, or 36.36 percent of the time.

The XLY Coppock guide’s latest initial nonbullish signal flashed in February, when the ETF’s closing share price was $66.63. Accounting for the one-month lag in the confirmation of any signal, XLY’s closing share price sank to $63.84 in April from $64.72 in March, which clearly constitutes nonbullish action by any standard.

Intriguingly, the XLY Coppock guide’s initial signals moved from nonbullish in December to bullish in January to nonbullish in February. In an episode both similar and different, the guide’s signals experienced oscillation in three consecutive months only once before in their history. In 2006, they whipsawed from bullish in May to nonbullish in June to bullish in July. The ETF’s share price hit a long-term peak 10 months later, which leads me to wonder about when it will reach its next long-term trough.

Coppock Guide: The Blog Series









Related Reading



Author’s Note: This is the ninth 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.