What is the Coppock curve?

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.