Coppock Indicator

What

The Coppock Curve was developed by Edwin Sedgewick Coppock, a US investment advisor, in 1962. It is a momentum oscillator that was designed for long term investors to begin accumulation at the beginning of a bull market. Coppock designed the indicator to identify significant lows in the share market by applying it to the charts of broad market indices.

The Coppock Curve has proven to be very good at discriminating between bear market rallies and true bottoms in the share market. Share markets tend to make spike bottoms and rounding tops. That is a result of the fact that fear is a stronger emotion in people than greed.

The Coppock Indicator signals the beginning of a bull market when it turns upwards. This signal is usually after the first leg of a bull market is underway, thus it’s highly reliable.

How

The indicator is designed for use on a monthly time scale. It's the sum of a 14-month rate of change and 11-month rate of change, smoothed by a 10-period weighted moving average.

Coppock = WMA [10] of (ROC [14] + ROC [11])

When

A buy signal is generated when the indicator is below zero and turns upwards from a trough. No sell signals are generated (that not being its design). The indicator is trend-following, and based on averages, so by its nature it doesn't pick a market bottom, but rather shows when a rally has become established.

Coppock designed the indicator (originally called the ‘Trendex Model’) for the S&P 500 index, and it's been applied to similar stock indexes like the Dow Jones Industrial Average. It's not regarded as well-suited to commodity markets, since bottoms there are more rounded than the spike lows found in stocks.