Wednesday, August 12, 2009

Animal spirits in the stock market

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

Below are the graph of the venerable Coppock Guide and my “animal spirits of the SPX” indicator (SPXAS2) that is calculated the same way as the “animal spirits” indicator for the unemployment rate (with a sign change).

Both indicators suggest that the stock market wants to continue to rally, sheerly on emotion and easy money.  I expect, along with Bob Prechter, for the market to break below the March lows in time.  However, this reading is consistent with the July 26 “buy” signal from the Dow theory.  This rally is testament to the power of easy money, even when most consumers are broke.  Buying into this market in these economic conditions may be damaging to your digestion.

Also, the Coppock gave a false signal in 2002 and might well do again.



  1. Can you give the exact SPX calculation? Thanks.

  2. (SPX - mean over 48 months(SPX))/exponential moving average of SPX over 48 months

  3. Do you then divide by volatility?

  4. I'm sorry, busy....

    (SPX - exponential mean over 48 months(SPX))/stdev SPX over 48 months.

    Play around with it. It's a pretty standard oscillator type formula.