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Coppock confusion

Simultanous buy signals on key equity markets and so-called safe havens such as bonds and gold are a troubling contradiction for investors to contemplate
June 10, 2016

May brought a rare sight - from a recent perspective - on our Coppock system: buy signals on both the US and UK blue chip indices. The S&P 500 had been flashing sell since March 2014, while the FTSE 100's sell signal had persisted for just over a year.

In the case of the FTSE, blame for its long winter can be laid largely at the door of the commodity markets, which have battered the oil producers and miners. Yet they are behind the bounceback, too - the oil price has continued to recover, with Brent crude hitting the psychologically important $50 a barrel mark at the end of May, prompting a powerful response in producer's share prices; Shell's share price has now risen nearly 40 per cent since January. May was a poor month for industrial metals, but even there the trend is upwards, reflected in shares prices for the likes of BHP Billiton and Rio, and also the new buy signal on the mining heavy Johannesburg Top 40 index.

The S&P's buy signal has also proved well-timed, with the index back to all time highs and threatening to break through to higher levels still after the Federal Reserve's decision to keep the Fed Funds rate on hold, and also the positive effect of a rising oil price on US energy stocks. Is it a signal worth heeding, though? The Fed's decision was based, after all, on weak jobs numbers, while US shares remain expensive on around 19 times forward earnings. Somewhat jarringly, worries over global growth have seen a sudden resurgence in bond prices and ever-tightening yields - as reflected in the recent sudden reversal of signals on the bond indices covered by our Coppock system.

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