The Coppock Indicator, a technical indicator we follow, gave a ‘Buy’ signal at the end of October on Japanese equities. The Coppock Indicator is used to time entry into markets – it only gives ‘Buy’ signals – and measures the pace of change between the most recent end-of-month index price and the index prices from 11 to 14 months ago.
Lower weights are given to months that are further back in time so that, in effect, the indicator is like a moving average, but with more emphasis put on price movements in recent months. It is attempting to catch the turn in a market. The indicator gives a ‘Buy’ signal when its value turns negative, and then becomes less negative – so if the indicator reads -2 in one month, then -1 in the next, that is a ‘Buy’ signal.
While there is no silver bullet in investing, the track record of the Coppock Indicator is good. For example, returns from the Nikkei 225 Index after 1, 3, and 5 years have been, on average, 7%, 17%, and 37% (not including dividend income) following a Coppock Buy signal.
Our interpretation of this latest signal is is that it reflects a lack of sellers rather than a burst of new buyers for Japanese stocks, and both the index and the Coppock Indicator reflect this. Of course, this is no bad thing – a cheap market (12x estimated 2022 earnings, 2.6% dividend yield) and a cheap currency with no sellers can herald the start of a new bull market in that index, even if it starts slowly. As always, only time will tell!
For those interested, we give a more detailed explanation of the Coppock Indicator on our website. In addition, we track the Coppock Indicator for 14 indices, commodities, and funds on a monthly basis while also offering ways of gaining exposure to these ‘Buy’ signals.