The Coppock Indicator has proved to be a reliable gauge for making medium- to long-term calls.
A buy signal is triggered when it crosses into positive territory while a sell signal is given when it enters negative territory.
The Coppock Indicator has sent 19 buy signals for the S&P 500 since 1947. And market statistics show that it gave out only three false signals during the period.
How does the benchmark work on the Hang Seng Index?
Since 1970, the Coppock Indicator has sent 11 buy signals, 10 of them proved to be right calls.
The indicator sent another buy signal for the Hang Seng Index two months ago. After volatile moments in May and June, the buy signal has become clearly established.
A few points should be remembered when investors try to apply the indicator to their trading activities.
First of all, it is a medium- to long-term signal. From the time a buy signal comes out to the emergence of a sell signal, the average time period is 35 months in the case of the Hang Seng Index. So this signal is not for short-term trading.
Historical data also suggests that the market does not always go up right after the buy signal comes out.
In the case of the Hang Seng Index, when the Coppock Indicator came out with a buy signal, the index actually posted varying degrees of decline in the first 100 trading days in most cases.
While the indicator has given a buy signal, fundamentals are currently pointing the other way.
The global economy is seeing mounting downward pressure. PMI readings in the eurozone, China and other regions have all dropped below 50, a sign that the manufacturing sector is contracting in several major economies.
South Korean exports took another hit last month, tumbling 13.5 percent to the lowest level since January 2016.
So should we trust the signal this time?
One should remember that a bull market often begins when things look bleak.
This article appeared in the Hong Kong Economic Journal on July 4
Translation by Julie Zhu
[Chinese version 中文版]
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