A:

Technical analysis claims the ability to forecast future movements of financial instruments, such as stocks or commodities, through the study of past market data. By graphically portraying data, like price and volume, on a chart and analyzing it, future price movements can be discerned.

The Coppock curve was first published in Barron's in 1962 by Edwin Coppock. Originally designed as a technical analysis indicator for the S&P 500 index, the Coppock curve can be easily applied to other stock market indexes.

The Coppock curve is a long-term price momentum indicator used primarily to recognize major bottoms in the stock market. Most technical market analysts consider the Coppock curve to be an excellent tool for discriminating between bear market rallies and true bottoms in the stock market. The indicator was designed for use on a monthly time scale and is calculated as a 10-month weighted moving average of the sum of the 14-month rate of change and the 11-month rate of change for the index.

The stock market normally has rounding tops, but spike bottoms, which the Coppock curve is very good at identifying. A buy signal is generated when the indicator falls below zero and turns upward from a trough. Because the Coppock curve is a trend-following indicator, it does not pick an exact market bottom. However, it is excellent at showing established rallies and revealing when a new bull market has begun.

(For more on this topic, read Exploring Oscillators and Indicators: Introduction.)

This article was answered by Tony D'Altorio.

RELATED FAQS
  1. How can the yield curve help me make investment decisions?

    Learn about the yield curve, and discover why this chart is an important economic indicator. How do Treasury bond yields ... Read Answer >>
  2. Why are the term structure of interest rates indicative of future interest rates?

    Learn why economists believe the term structure for interest rates reflects investor expectations for future interest rates ... Read Answer >>
  3. What is the current yield curve and why is it important?

    Understand what the current yield curve represents, and learn how market analysts commonly interpret various changes in the ... Read Answer >>
  4. Where on the Internet can I find yield curves over various periods?

    Find out where to locate reliable yield curve information on the Internet, including the U.S. Department of the Treasury ... Read Answer >>
  5. What is the difference between term structure and a yield curve?

    Understand the difference between the term structure of interest rates and a yield curve, if any. Learn what the yield curve ... Read Answer >>
  6. What does the yield curve actually predict?

    Find out what an inverted yield curve represents, how it has performed as a leading indicator and why it appears to hold ... Read Answer >>
Related Articles
  1. ETFs & Mutual Funds

    Using the Coppock Curve to Generate Stock Trade Signals

    How the Coppock Curve momentum indicator can help you isolate buying opportunities and exit points in the stock market.
  2. Investing

    Yield Curve

    Learn more about how this curve is used to predict changes in economic output and growth.
  3. Investing

    Trade Bond ETFs Using Yield Curves

    Different types of yield curves provide important insights for trading bond-based securities.
  4. Markets

    Understanding Term Structure of Interest Rates

    The term structure of interest rates is a common method of valuing bonds.
  5. Investing

    The Impact Of An Inverted Yield Curve

    Find out what happens when short-term interest rates exceed long-term rates.
  6. Markets

    Understanding The Treasury Yield Curve Rates

    Treasury yield curves are a leading indicator for the future state of the economy and interest rates.
  7. Investing

    Understanding the Inverted Yield Curve

    An inverted yield curve occurs during the rare times when short-term interest rates are higher than long-term interest rates.
  8. Markets

    U.S. Recession Without a Yield Curve Warning?

    The inverted yield curve has correctly predicted past recessions in the U.S. economy. However, that prediction model may fail in the current scenario.
  9. Markets

    Will an Inverted Yield Curve Happen Again?

    Explore the causes of inverted yield curves, their frequency, their accuracy in forecasting recessions and whether this type of event can happen again.
  10. Markets

    Bond Yield Curve Holds Predictive Powers

    This measure can shed light on future economic activity, inflation levels and interest rates.
RELATED TERMS
  1. Coppock Curve

    A long-term price momentum indicator used primarily to recognize ...
  2. Normal Yield Curve

    A yield curve in which short-term debt instruments have a lower ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments ...
  4. Equity Curve

    A graphical representation of the change in value of a trading ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, ...
  6. Flat Yield Curve

    A yield curve in which there is little difference between short-term ...
Hot Definitions
  1. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  2. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  3. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  4. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  5. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  6. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
Trading Center