Dow Theory & Coppock Curve

Today is the end of month and that means an update to the Coppock Curve. Last month, I wrote "Begin Accumulationg (With Caution): Coppock Curve" Noticed the word Caution! The market closed June slightly down or virtually flat from last month (8,500 > 8,447). While the Coppock triggered a buying signal, I wasn't too bullish because of the Dow Theory.

The recent non-confirmation in Dow Theory got me puzzled. The Transport was so close to confirming a bull market signal, but it failed. On May 6, the Transport closed at 3,404.11. The following June 11, it closed at 3,399.88. That is 0.12% off. How close can it get. The market also rallied in the face of bad news. Commodities prices appeared to have bottomed. Could the Dow Theory be wrong this time?

I got curious and began running the Coppock number on the Transport. I looked back since 1960 to see when is the best time to buy according to this indicator. Something very interesting appeared. We know that the Coppock Curve on the Industrial gave us a false alarm in 2001 and 2002 time frame. But cross checking the Coppock Curve of Industrial with Transport may reassure the buying signal. The table below shows the time a buying indicator was triggered. The green means it was time to buy and red was false alarm. Typical strong buy can be said when both averages gave a buying signal on the same month. One month lag occurred but proved to be the right signal. Two months lag occurred in 1975. A false signal happened during the tech bubble. According to this indicator, you would buy in April 2001 but the true signal didn't come until 2 years after. Using the Transport as a check, you would entered the market in January 2002. This goes to show that no indicator is perfect.



The below shows where we are. The Industrial gave us a buying signal at the end of May, but the Transport is still in the red zone. Buying signal is triggered when the curve become less negative than the previous month.



Summary
Since the end of May, the market went no where. The Coppock Curve for the Industrial remains bullish but the Transport is bearish. To be convinced that this isn't another false alarm, I will have to wait until the Coppock Curve for the Transport turn upward as well as a Dow Theory confirmation of the averages.

I remain neutral with 50% of my position in cash. The rest are in MO, HNZ, and CAH.
If you invest in index funds or mutual funds, be award of the market movement.

Art

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