Coppock (the lower curve on the chart) measures momentum. When it is rising a share is gaining momentum. When it is falling it is losing momentum. A strongly rising share can lose momentum by rising more slowly or not rising at all. It doesn’t have to fall although it may do if there is a more extreme loss of momentum.
Shares rise because there are more buyers than sellers, which is typically the case when the number of people (the crowd of investors) following the stock is growing so there is an ample supply of new money coming into the stock.
This explains what I call the day-in-the-sun moment. People become aware that something new and exciting is happening at a company (AI triggering massive demand for Nvidia’s GPU chips) and buyers crowding into the stock overwhelm sellers.
Momentum buyers (investors jumping on the bandwagon of an exciting stock often with little grasp of what is happening) pour further fuel on the flamers. Sellers become reluctant to leave the party and shares can rise rapidly to multiples of their starting value.
Coppock can be good at capturing this process and the precise moment when it starts. In the chart above of QQQ3, an ETF which amplifies movements in the Nasdaq 100 index, we can see how momentum grows and fades in long slow swings.
In 2022, driven by a spike in inflation and a sharp rise in interest rates, shares in growth stocks were dramatically revalued. This is simple arithmetic. Much of the value of growth stocks lies in the huge sales and profits they are expected to deliver years into the future. The present value of these future results is calculated by using a discount rate which is determined by the prevailing level of interest rates.
If interest rates rise dramatically from low levels, as happened in 2022, the effect on growth shares can be seismic and it was. Nvidia fell from $34 (adjusted for splits) to around $10. There were some negative developments on the fundamentals but much of the fall was driven by rising interest rates.
In February 2023 the Coppock Curve for Nvidia shares turned higher from negative. This was a classic buy signal. The bunched moving averages gave a buy signal at the same time. The unequivocal chart message near the start of 2023 was that Nvidia shares were a buy.
It was a good time to buy. The shares were around $20 and are now around $116 and have been higher.
I think Nvidia is a business with such outstanding fundamentals that buy and hold, $-cost averaging based on monthly purchases, or buying on every buy signal is a good idea. I am much less convinced that investors should try to time sales which are notoriously hard to get right. Just have faith that this is a fantastic company at the heart of the technology revolution and forget about selling.
However, if you do want to trade some of your shares, or do some trading for fun, Coppock may offer a bullet-proof road to success. This is based on a simple proposition. If you use Coppock to time buying and selling it is an unreliable guide. It turned down too early in 2020 and 2022. But there is one thing Coppock ALWAYS seems to get right. While the Coppock Curve is rising the shares are a firm hold and a buy on any weakness.
Look a the chart of QQQ3 above in the light of that assertion. Pick any period when Coppock is rising and the shares will be climbing. What is exciting about turning points (when the curve begins to become less negative or more positive) is that this typically occurs at an early stage of the rise.
Then Coppock often, even typically, turns down before the shares do, sometimes long before. A Rothschild famously said you should leave some profits for the other guy and that is what Coppock does.
For a near-certain road to trading profits buy shares when Coppock is rising and sell when the rise tops out. You may not maximise your profits from that stock but you will do very well.
Presently, Coppock for both QQQ3 and Nvidia is trending down and has been doing so for some time so traders, using this system, would not be holding either stock. At the same time, the moving averages are bunching so they too could be shaping up for an important buy signal.
If you just think the fundamentals are amazing and are ready to buy today I expect you will do well. Incredible companies like Nvidia can stay incredible for a very long time, not least because they can change and adapt to new circumstances.
Strategy – Buy & Hold While Coppock is Climbing
It could not be simpler. Own shares, while Coppock is climbing. Close your position when Coppock turns down. You may leave money on the table but this looks like a way to make handsome profits. Do this in a spread betting account with sensible leverage and those profits will be tax-free.
Don’t forget this is a strategy designed for exciting 3G shares (great story, great growth, great chart). Boring shares don’t work for Coppock or anything else.
