Eerily quiet

Vix five-year - temporary volatility spike

Source: Bloomberg

One explanation for the lack of any major signal lies with the way our Coppock signal works. When we switched to our new methodology in April we started using monthly closing prices rather than monthly average prices upon which to base our calculations, the rationale being that these are more readily available to readers wishing to replicate the system - and because Edwin Coppock used closing prices himself. And in October, many markets ended the month pretty much where they began - as the MSCI World index graph below, a useful proxy for global markets, shows.

MSCI World - back to where we started

Source: Bloomberg

Which all made for an uneventful month on the Coppock front, with only two sells and two cancelled sells (aka unofficial buys). The sell on Canada's TSX Composite means that all of the North American indices we track are giving sell signals - it is only surprising, given that market's large exposure to weakening commodities, that it has hung on for so long. As for the new sell on Korea's KOSPI, it may be one to ignore - the last sell signal came in January, the somewhat unpredictable index's lowest point this year. Also worth ignoring is the cancelled sell on Russia's Micex - the rouble denominated index has been stuck in a channel for years, unlike its dollar equivalent, the RTS, which has trended down alongside the weakening Russian currency.

One question you may ask is why, given the low volatility environment is Coppock still flashing sell across many developed market indices? After all, even the mid-October spike did not take the Vix anywhere close to the much more significant jumps seen in 2010 and 2011. Again, the answer lies in the way Coppock works. Its signals are based on 11 and 14 month moving averages, and represent, in the words of Mr Coppock, a "long term momentum guide". And despite developed markets remaining at or close to record highs, that momentum continues to weaken, albeit not as categorically as it has done at past periods of high volatility.

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