Sunday, June 7, 2009

Coppock indicator and stock market forecast

Inspired by:  Traders keep anxious eye as key indicator offers 'buy' signal – FT

So the Coppock indicator has turned up?  If the indicator follows a typical upward trajectory, what is the implied stock market forecast for the next twelve months?


Here is the assumed forecast for the next year.  The graph shows a stylized 36-month forecast.

2009:05    919.140000000
2009:06    920.059140000
2009:07    920.979199140
2009:08    921.900178339
2009:09    922.822078517
2009:10    923.744900596
2009:11    924.668645497
2009:12    926.055648465
2010:01    927.444731938
2010:02    928.835899035
2010:03    930.229152884
2010:04    931.624496613
2010:05    933.021933358

The implied forecast represents a 1.5 percent capital gain over the coming year.  As FT points out, the S&P could even decline slightly and have the curve exhibit typical-looking upward movement.  Hence we are looking for longs to be pounded at some point by Wall Street as the institutional traders who apparently missed the post-panic run-up would very much like to buy on a dip while the momentum is still somewhat upward.

As this simulation shows, this doesn’t have to be a false signal for it not to represent the usual good Coppock buying opportunity.  The next good buying opportunity might be in 2012 or 2013.

Buckle up for safety.

This is research, not investment advice.  You invest at your own risk.

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