Coppock capitulates

North American indices have not been an especially good advertisement for the predictive power of the Coppock system, which has similarly suggested further downside for the Dow Jones and S&P 500 for much of the last two years until a reversal of signals on both in May. In the case of the Nasdaq 100, the index has risen by a fifth since Coppock turned bearish in September 2014, defying suggestions that the US market was overvalued and due a significant correction.

In the system’s defence, the last two years have hardly been one of runaway gains for US markets, more a stuttering collection of peaks and troughs, with the peaks gaining the upper hand overall. And its bearish stance on European indices has been vindicated by a year of underwhelming returns from major indices including Germany’s Dax and France’s Cac 40.

Moreover, as I have frequently repeated, though, Coppock's strength is as a long-term buying guide, and as such the oscillations of the indicator means that, inevitably, some periods of upside will be missed when its rules determine investors should not be in the market.

As our earlier backtesting has demonstrated, slavishly following the system does, in fact, deliver higher returns than simple market tracking, adding an extra 1.6 percentage points a year on a total returns basis over simple buy-and-hold. And while it may miss some gains, it also has a good record of avoiding losses in the worst market conditions, and, of late, in calling the direction of both bond and commodity markets.

In summary, we should not abandon Coppock simply because its mechanical nature has not been able to second guess the recent strange behaviour of US markets.

*New signals