The Coppock indicator and the Australian market.
The Coppock indicator is a long-term momentum oscillator based on rate of change. It was developed to identify long-term investment opportunities in the S&P 500 and Dow Industrials indices. The signal is very simple. A buying opportunity is identified when the Coppock indicator is negative and becomes more positive (but crossing the zero line is not an entry signal).
From looking at many charts, it is evident that there is little difference in subsequent movement of the index whether there is a deep or a very shallow Coppock trough. The Coppock is a lagging indicator and the signal is very general and often several months late. A more precise entry signal is provided by a monthly MACD crossover but this signal is usually later still than the Coppock.How useful is the Coppock signal? The monthly chart of the All Ords Index below, shows that there were nine Coppock entry signals over a 40-year period. If all of these signals had been taken, only one signal (in 1988) would have resulted in a loss (from the index) of about 9%. The depth of the Coppock trough gives no indication just how profitable any subsequent move will be. For example, the Coppock signal in 2003 was very average but the subsequent move on the index yielded a move of about 90%.
This suggests that the Coppock is a high probability signal and is useful for identifying a potential bull market and indicates the approximate time when investors should start buying stocks. But it is not a precise indicator.