“I, for one, welcome our new bull market overlords.”
Is this just a really deceptive bear market rally or is it the real thing? While the debate still rages, the market keeps going and going and going… like the Duracell battery rabbit.
A reliable but somewhat esoteric long term indicator is ready to pronounce the birth of a brand new bull market. Just as long as the stock market can hang on to most of its gains by the month’s end.
If you’re not familiar with the Coppock Curve I introduced it last summer as one of the pre-requisite conditions for a new bull market. Click the previous link to learn more. The other conditions (recession, a 20%+ decline, easy monetary policy, etc.) have all been fulfilled. The stage is now set for the last piece of the puzzle.
In January I wrote a Coppock Guide forecast:
In that hypothetical scenario, the Coppock curve would turn up by the end of February 2009 by the minimum. And in March, it would turn up significantly.
I wasn’t trying to predict what the indicator would say and when so much as to show that we would need to see one hell of a rally for it to register a change of direction in the Coppock Curve. And did we ever! From the March bottom the S&P 500 rocketed up 36%. That not only surprised almost everyone, it was finally enough to force the Coppock Guide to curl up:
S&P 500 Index
Probably the most important of all the indices, the Coppock Curve for the S&P 500 Index is about to give us a new signal to indicate a new bull market. But before it can do that, the S&P 500 will have to close at or above 874 at the end of the month. That is a fairly small buffer area of 3.35%. If it can manage that, then we’ll see something like the zoomed in chart shown above.
As the 2002 false signal shows, while this lagging indicator has a fantastic track record, it is far from perfect.
Of importance is not just that we are about to see a respite in the continuous drop in the Coppock Guide but that this upturn (when it comes) will be from an extremely deep level. As you can see from the chart, we haven’t been here for a long, long time. According to the Coppock Guide, a new bull will be proportional to the bear market that preceded it. So a recovery launched from such an extremely negative level means that the new bull market will be powerful and long lasting.
The Coppock Guide for the Nasdaq Composite already gave us a signal at the end of April 2009. But I hold it with suspicion since in the past the indicator has not been too trustworthy. For example, going back to the last time we transitioned from a bear market to a new bull market, the Nasdaq Coppock Guide was off by a lot. It first turned up in December 2001. But that was a false signal. Then there was another signal in August 2002 and December 2002. Both were again false.
Finally, it curled up yet again in late March 2003, just as the nascent bull market was sprouting its horns. So you can understand my reticence in rushing to accept the Coppock signals from the Nasdaq index. The good news is that because the Nasdaq Coppock Curve has already turned up, it needs to do much less to prove itself and confirm the signal. In fact, we could see the Nasdaq Composite fall 7.7% to 1587 by the end of the month and it would still be enough to keep the Coppock Guide headed upwards.
Dow Jones Industrial Average
The Dow Jones Industrial Coppock Curve is also ready to curl up after topping in October 2007. If it can manage to close at or above 8210 by the end of this month (about 2% from here) a valid signal would be given.
So while, “I, for one, welcome our new bull market overlords.” we’ll have to wait at least until the end of the month to get a definitive signal from this trusty indicator. And as a final caveat, while the Coppock Guide has an enviable track record, like anything else, it isn’t foolproof.