Coppock moves in long, slow swings, hence its description as the Coppock Curve. This suggests that becoming negative is less important than the change in direction. Leveraged ETFs are interesting because they amplify the picture, like looking at the stock market through a magnifying glass.
If we apply these Coppock changes in direction to the actual trend in the stock market, the signals are most helpful. Whenever Coppock starts climbing share prices will likely do the same.
That is quite a WOW! thing to know.
Less confidently we can deduce something else from the behaviour of the Coppock Curve. When it is falling, it is inadvisable to buy shares because of the risk of further declines. This was especially the case between August 2021 and February 2023.
Coppock is falling, which leads to two conclusions. First, it is dangerous to buy shares, and second, there should be an exciting buy signal coming. We can see this even more dramatically on the five times leveraged ETF, QQQ5.
The history of this chart is too short to have any Coppock buy signals but the behaviour of the curve is instructive. It is in freefall and has declined from around 450 to 167. At this rate it will be negative by the summer. This (a) takes it into buying territory on my negative Coppock rule and (b) means the next upturn in the curve will give an exciting (arguably infallible) buy signal.
Investors always want to be able to predict the future. Maybe, with Coppock, we can.
Now for a leveraged ETF with an electrifying message.
This is a three times leveraged ETF tracking the performance of semiconductor shares. We can see immediately that it gives great buy signals – five since 2012 and all good ones. Presently it is plummeting and is on the brink of becoming negative. The next buy signal on this chart is going to be HUGE!
Interestingly, the poor performance of this chart since July 2024 has been (a) an early warning sign of more general weakness in the stock market and (b) adds substance to my theory drawing parallels between the AI boom and the 19th century railway boom.
I don’t want to curdle people’s blood, but the 1920s was a period of incredible technological advance with radio, film, mass manufacturing of cars and all sorts of exciting things going on and what happened in 1929 – a bloodbath in the stock market.
TECL, all about technology, is yet another leveraged ETF with its Coppock Curve falling sharply. Again the curve moves in long slow swings. Each time the curve turns higher after a sharp fall, a valuable buy signal is given.
Looking at this chart, you could also say that when Coppock is falling after a significant rise, it makes sense to look out for sell signals, and once it starts climbing, the emphasis switches to buy signals.
Strategy – What Happens If You Forget About The Charts
I have just imagined to myself that I knew nothing about charts and never looked at them. Instead I read the latest reports from companies like Nvidia and Palantir, arguably the two most amazing technology companies that have ever existed on planet earth.
I don’t think I would come away feeling bearish. How could I when the companies are (a) delivering incredible results and (b) wildly excited about their prospects. Maybe what this is all about is not selling but either looking out for the next buy signal or just buying at intervals, saying adding a tranche monthly for the rest of time.
Let us even suppose that both companies are overvalued, perhaps massively so in the case of Palantir. So what! If you keep buying, you will either buy low and then the shares will rise or keep buying until the fundamentals catch up with the valuation.
I love looking at charts, but I probably need to step back and ask myself, as I have in the past, do I back the chart or do I back the CEO.
Look at this chart of Nvidia and what stands out is that previous peaks in the Coppock Curve and previous moving average sell signals, although illuminating at the time, were at prices dramatically lower than the latest price. If you have decided that you will NEVER sell shares like Nvidia and Palantir, the logic is on your side.
