Ask Colin

Does the Coppock indicator falling below zero mean we are heading into a bear market (January 2016)?

The detailed question was:

Since the Coppock indicator has been below the zero line and heading south since end of November, does this not indicate that we are heading in to a bear market? What is the significance of its present direction?

 

The definition of a bear market is not generally agreed beyond it being a period when prices decline with downward swings finishing lower than previous downward swings. We had a downward trending period, but whether it was a bear market or a correction in a bull market is an very open question. We have now had a prolonged sideways pattern. That could be a base for a resumption of the bull market if the breakout is upward. It could also be a secondary reaction in a minor or major bear market, depending on how it plays out. Until the sideways pattern breaks, the market is trending up. If the situation changes it calls for a re-examination.

 

The Coppock indicator does not define a bear market. It gives signals to buy for long term appreciation near the bottom of bear markets and in significant corrections in bull markets. If it declines, it does not signal a bear market coming, though that may sometimes be the case. I have stressed repeatedly in recent months in the Weekly Market Charts and Analysis posts on the members website that the Coppock is not magic, it is simply a very specific long term momentum oscillator. In a rising trend it will fluctuate. In a falling trend it will fluctuate. Those fluctuations are normal for momentum oscillators and downward fluctuations do not signal anything more than a decline in momentum.

 

The Coppock should not be overworked as a predictive indicator – it was not designed as such and I have never seen research to suggest that it is. The Coppock only gives one signal – when it is time to start buying for long term appreciation. It might usefully be a part of your investment plan, as it is in mine, but that depends on the totality and details of your plan.

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