According to the old stock market adage, investors should 'sell in May and go away'. The message of the Coppock indicator at the end of May 2014 was very much at odds with this, however. Some 14 equity indices effectively gave Coppock buy signals at the end of last month, while only one gave a sell signal. These signals were spread across both the developed world and emerging nations. Twenty-four markets, meanwhile, stayed unchanged.
Coppock's world view
Of the 14 buy signals, three were outright 'buys': Singapore's Straits Times index, Mexico's IPC and Russia's Micex. The other 11 were reversals of previous sell signals, which count as new buy signals in my updated Coppock methodology. Many of these are clustered in the eurozone, including Germany's DAX and France's CAC 40. The full list of buys and sells are shown in the accompanying table.
|Buy signals||Sell signals|
|FTSE Bursa Malaysia KCLI|
|Korea SE Composite|
|Singapore Straits Times|
|Taiwan SE Taiex|
|South Africa JSE Top 40|
|Greece Athex Composite|
|Belgium Bel 20|
|Germany DAX 30|
|Euro Stoxx 50|
|OMX Stockholm 30|
While the world according to Coppock now looks much more bullish than it did in April, several top markets remain on sell signals. Most notably, America's S&P 500 and Dow Jones Industrial Average have yet to reverse the negative signals they gave in March, despite these two indices lately reaching new all-time highs. Our own FTSE 100 - which has lagged other developed markets - also stays stuck on a 'sell', as do Japan and Switzerland.
I am not especially surprised by the fresh burst of Coppock positivity. As I pointed out last month, false 'sells' are not uncommon during bull markets. For that reason, I recommended treating the bearish signals we had seen as a warning, rather than as a call to action. My case is straightforward enough: the price trend across most developed stock markets is still plainly upwards and that trumps Coppock's messages.
There is something of a contradiction here, of course. My research has found that Coppock's signals could have helped investors to have beaten various stock market indices while running lower risk - see Boost Returns and Cut Risk, 13 March 2014. However, my study assumes that investors unfailingly bought every buy signal and sold up and switched into interest-bearing cash upon every sell signal. Coppock works most effectively when followed faithfully, rather than by cherry-picking.
My overall stance on equities is still fairly bullish for now. Monetary conditions are loose in the US, UK, the eurozone and Japan. And there is value to be had, particularly outside of the US. The latest clutch of Coppock buy signals in the eurozone come as a further boost to my optimistic case.
Coppock and the bond market
Sedge Coppock thought up his "very long term momentum indicator" as a tool for deciding when to buy into the stock market. In back-testing, I have found it has served this purpose pretty well for quite a few major indices. And it also does a decent job of timing the commodities markets. But what about government bonds?
Had you followed Coppock's buy and sell signals for the US and UK 10-year government bonds since the 1980s, you would have done worse than had you simply bought and held those instruments. The same goes for the FT All-Stock Gilt index, which is made up of the full array of UK government paper. Factor in the costs of switching in and out - which would have been greater than for buy-and-hold - and the picture worsens further.
In light of this, is there any point in looking at Coppock for guidance in the bond market? In one respect, Coppock was useful: its signals helped cut the risks involved. However, the risks of bonds were fairly small to begin with, so this isn't a great comfort.
Looking at 10-year government bonds, the US, UK, Germany and Japan were already on Coppock buy signals before the end of May. They have now been joined by the Iboxx sterling liquid corporates long-dated index and the FTSE British Govt index-linked All maturities index.