Traders are eagerly watching a relatively obscure technical indicator. Every time it turns higher, it almost always signals the start of a bull market!
We’re talking about something known as the Coppock guide. According to Bloomberg the technical indicator has successfully signaled the start of a bull market all but once since World War II.
Although it’s a rather complicated thing – essentially the Coppock guide signals a buy when it moves from a negative number to zero. And it's making that move right now!
Even if you typically dismiss technical signs as mere voodoo, you might not want to dismiss this move if history is any barometer. Stocks advanced 16 of 17 times in the first year after the broader index’s Coppock curve turned higher.
Technical analyst Dan Fitzpatrick of StockMarketMentor.com tells Fast Money the key part is that it’s been heading south really hard but now it's heading northward from an extremely low level. From a momentum standpoint, the chances of the market just rolling over and turning south again are really slim.
What's the bottom line? From a long term perspective there could be nice momentum to the upside.
In case you’re curious, following is a more involved explanation of the Coppock guide from MarketWatch.
In essence the Coppock Guide is a momentum indicator that filters out shorter-term market swings in order to focus on the market’s long-term trend. It’s calculation involves the following steps:
At the end of each month, calculate the percentage change of the market relative to where it stood 14 months earlier. Also at the end of each month, calculate the percentage change of the market relative to where it stood 11 months earlier.
Calculate the sum of these two percentages. Caluclate a 10-month moving agerage of this sum, front-weighting that moving average to give greater weight to more recent readings.
Technical analysts consider it a buy signal whenever it turns up from a negative reading.
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Trader disclosure: On June 1st, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (WFC), (AAPL), (F), (TGT); Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Finerman's Firm Owns (TBT), (RIG), (NOK); Finerman Owns (TBT); Finerman's Firm And Finerman Own (BAC) Preferred Shares And Are Short (BAC); Finerman's Firm Owns (MRO); Finerman's Firm And Finerman Own (WFC) Preferred Shares, Finerman's Firm Is Short (WFC); Finerman's Firm Is Short (IJR), (MDY), (SPY); Finerman's Firm Is Short (IWM); Finerman's Firm Is Short (USO); Najarian Owns (AMAT) Call Spread; Najarian Owns (BP) Call Spread; Najarian Owns (INTC) Call Spread; Najarian Owns (FCX) Call Spread; Najarian Owns (HIG) Put Spread; Najarian Owns (PFE); Najarian Owns (MOS; Najarian Owns (XHB) Call Spread; Najarian Owns (MRO) Calls; Najaria Owns (NBR) Calls