Pro Analysis

Obscure 'Coppock Curve' pattern points to rally

Andrew Adams, a technical analyst at Raymond James, cited quite an obscure theory in his "Charts of the Week" report sent to the firm's clients Wednesday morning.

It's called the "Coppock Curve" and despite its rather strange origin, it's track record is pretty darn good at confirming whether rallies are for real or not.

Adams, a member of Jeff Saut's team, writes (emphasis ours):

The Coppock Curve can actually be traced all the way back to a Barron's article from October 1962 (source: Wikipedia), after its creator, economist Edwin Coppock, developed it as a way to identify long-term buying opportunities. The indicator itself takes a 10-month weighted-moving average of the sum of the 14-month and 11-month rate of- change for an index like the S&P 500 and does not generate many signals when using monthly data. Interestingly enough, Coppock chose 11 and 14 months as the inputs because an Episcopalian priest said this was the average mourning period when grieving the loss of a loved one, and Coppock theorized that the recovery period for stock market losses would be similar to this time frame (source: Stockcharts.com). The buy signal comes when the indicator crosses from negative territory into positive territory, which has recently occurred, and as you can see on the chart, it typically has done a good job identifying the big bull moves going back to the early 1980s (1995 wasn't a true buy signal, but it was close enough to include, IMO).

Here's the chart: