Tatton teaser: Can you time the market?

Posted 15 December 2022

It’s certainly an interesting question. Traditionally, the answer would be no as spending time in the markets can help one avoid the costly mistakes of getting timing wrong.

But is it true that you cannot time the market? Well if you ask a technical analyst, someone that looks at charts seeking to identify repeating patterns on a price graph, you might get a different answer. Identifying the top of a market is notoriously difficult but what if you could get a sense that a market was in the process of forming a base or bottom that it could move higher from based on analysing trends?

Enter the Coppock Curve. First published in Barron’s Magazine in 1962, economist Edwin S. Coppock and founder of Trendex Research identified that the time humans take to process loss was between 11 and 14 months. Coppock reasoned that financial losses might also be mourned by investors in a similar fashion and he sought to identify long-term buying points following a market correction.

A true test of any potentially repeating patten or signal is how well it performs based on historic data. The Coppock Curve appears to have confirmed every major bull market since the late 1920s – but there were two false signals seen in 1941 and November 2001.

A Coppock buying signal is thought to occur when the indicator is below zero and turns upwards towards zero from a trough – it doesn’t seek to identifying selling signals, just a market bottom when a rally appears to be establishing itself. The signal would suggest investors hold their position when you cross zero and sell when the signal rolls over and starts turning down, although it’s been less successful at calling a market top. The signal is a trend following strategy based around averages. The more negative the starting point of the signal when it begins to move upwards, the more potential upside there’s meant to be. We note a few buying points on the chart below.

Using the Coppock Curve on the S&P 500, shown in blue on a log basis, today, we see the following signal emerge in orange. The Curve broke below zero in September and has stayed in negative territory since then.

The reading at the end of November indicates a level of -0.2, potentially suggesting current weakness is not over just yet based on the above. Even if markets rally from here, the Coppock Curve would only likely turn positive late Jan/Feb 2023 time – given it’s lagging average nature and historically an investor would normally miss the very early part of any rally but buy in when more established. A failure of any rally could see the signal move further negative, which would push out the buying signal to Q2 – 2023.

Based purely on the Coppock Curve, it is possible that a return to more bullish markets may take a bit longer than investors currently think. But then again, perhaps we shouldn’t try timing the markets after all.

Thank you Sam Leary for this note.

Subscribe to the Tatton Weekly Email

Get the latest news from Tatton HQ directly into your inbox every week. Packed with industry insights, our weekly mailing will keep you informed on the latest news from Tatton and beyond.

You can unsubscribe at any time by clicking the link in the footer of our emails. For information about our privacy practices, please click here.

We use Mailchimp as our marketing platform. By clicking below to subscribe, you acknowledge that your information will be transferred to Mailchimp for processing. Learn more about Mailchimp’s privacy practices here.

Important notice:

The Tatton Weekly is provided for information purposes only and compiled from sources believed to be correct but cannot be guaranteed.  It should not be construed as an offer, or a solicitation of an offer, to buy or sell an investment or any related financial instruments. Any opinions, forecasts or estimates constitute a judgement as at the date of publication and do not necessarily reflect the views held throughout Tatton Investment Management Limited (Tatton). The Tatton Weekly has not been prepared in accordance with legal requirements designed to promote independent investment research. Retail investors should seek their own financial, tax, legal and regulatory advice regarding the appropriateness or otherwise of investing in any investment strategies and should understand that past performance is not a guide to future performance and the value of any investments may fall as well as rise and you may get back less than you invested.

Any reader of the Tatton Weekly should not use it as a guide or form the basis of a decision relating to the specific investment objectives, financial circumstances or particular needs of any recipient and it should not be regarded as a substitute for the exercise of investors' own judgement or the recommendations of a professional financial adviser. The data used in producing the Tatton Weekly is for your personal use and must not be reproduced or shared.

Please select all the ways you would like to hear from Tatton Investment Management: