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Sancho Panza

Coppock, Farrell Indicators Suggest Financial Market Downturn Underway

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Paul Hodges Blog 2/11/15

'Coppock-Oct151.png

They don’t ring bells to warn of financial market tops and bottoms. But there are 2 very good substitutes in terms of the Farrell and Coppock Indicators, as the above chart for the UK stock market since 1973 shows:

  • It is based on the Financial Times All-share Index (FTA), as the FTSE 100 only began in 1984
  • It shows the Coppock Indicator for buying moments on the left (black line) with BUY signals marked
  • It also shows the annual percentage change for the FTA on the right (green line)
  • This is overlaid with Bob Farrell’s 20% and 40% Indicators for market peaks in dotted red lines

ERWIN COPPOCK
The Coppock Indicator was developed to try and identify when markets were bottoming. As Wikipedia describes, Erwin Coppock had the profound insight that people reacted emotionally to a financial market collapse, making it parallel the response to having a death in the family

Coppock, the founder of Trendex Research in San Antonio, Texas, was an economist. He had been asked by the Episcopal Church to identify buying opportunities for long-term investors. He thought market downturns were like bereavements and required a period of mourning. He asked the church bishops how long that normally took for people, their answer was 11 to 14 months and so he used those periods in his calculation”.

Coppock was clearly right with his insight, as the chart confirms. It has given real-time BUY indicators for all the major rallies, and only 2002′s signal was relatively early.

BOB FARRELL
Bob Farrell began his career studying famed value investors Graham & Dodd, and then analysed how sentiment could also move markets alongside the fundamentals of company earnings. He developed 10 legendary rules for successful market investment. One key insight was that markets that moved too quickly would normally correct. As he described this:

“Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways”

Working at Merrill Lynch, he became the leading “technical guru” on Wall Street, where he observed that market rallies of more than 20% in a year were normally followed by a major correction. Those that rose by 40% would inevitably be quickly followed by a correction. The chart confirms his insight.

RECENT MARKET DEVELOPMENTS
If we look at recent history:

  • It shows a BUY signal in May 2009 for the Coppock Indicator, followed by a 48% Farrell peak in March 2010
  • After the correction, there was a new Coppock BUY signal in July 2012, and a 26% Farrell peak in May 2013
  • Since then the Coppock Indicator has been in steady decline, and went negative in September

Both indicators, of course, were developed in a world where the US Federal Reserve would never have dreamed of trying to boost the economy by pumping up financial market prices. Instead, it saw its role as being “to take away the punchbowl, just as the party is getting going“:

  • We therefore cannot rule out the potential for “one last hurrah” in financial markets via a massive and globally co-ordinated central bank stimulus programme
  • But China seems unlikely to support such stimulusagain, as it focuses on its New Normal policy direction

Central bankers would, of course, deny that their activities have simply provided the stimulus for an exponential rise in financial markets, as defined by Bob Farrell’s Rule. We can only hope they are right, as the downside over the next few years – if they are wrong – could be considerable.'

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Isn't the downturn when the chart hit's about 40 FTA but when it's near -10 like now, that's the time to buy?

%age change still postive.

Buying point is after the turn.

http://www.telegraph.co.uk/finance/newsbysector/industry/mining/11977297/Lonmin-shares-tumble-10pc-as-its-faces-crunch-funding-deadline.html

'The 106-year-old South Africa-based company wants to raise $400m from shareholders and refinance $370m in debt to stem losses from the collapse in metals prices. Platinum prices have plunged from around $1,899 an ounce in 2011 to $969 an ounce today.

Lonmin’s shares have tumbled from over £40 in 2007 to just 21p, following a collapse in commodity prices after the credit crunch.'

Will need some serious QE to refloat this one imo,but still possible,will need the Chinese fully on board.

Edited by Sancho Panza

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%age change still postive.

Buying point is after the turn.

http://www.telegraph.co.uk/finance/newsbysector/industry/mining/11977297/Lonmin-shares-tumble-10pc-as-its-faces-crunch-funding-deadline.html

'The 106-year-old South Africa-based company wants to raise $400m from shareholders and refinance $370m in debt to stem losses from the collapse in metals prices. Platinum prices have plunged from around $1,899 an ounce in 2011 to $969 an ounce today.

Lonmin’s shares have tumbled from over £40 in 2007 to just 21p, following a collapse in commodity prices after the credit crunch.'

Will need some serious QE to refloat this one imo,but still possible,will need the Chinese fully on board.

I was talking about the green thingy that is below the 0 line

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heres a real time Coppock indicator available on stockcharts (294,231,210 mas)

Its appallingly slow, often wrong and completely useless.

hope that helps.

FTSE

http://stockcharts.com/h-sc/ui?s=%24FTSE&p=D&yr=5&mn=0&dy=0&id=p25748084447

SPX

http://stockcharts.com/h-sc/ui?s=%24SPX&p=D&yr=5&mn=0&dy=0&id=p95269009635

(edit wrong charts initially)

If anything FTSE & SPX are suggesting close to "buy" signals imo but by the time they give the signal its too late.

Edited by R K

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