"Too much too soon." Those are the words of E.S.C. Coppock in describing the emotional state of the uninitiated investors response to the ups and downs of the stock market. The purpose of the Coppock Curve is to measure the emotional overreaction to the movement of the stock market.
Mr. Coppock observed that investors tend to ignore the fact that earnings are stable or rising and instead sell off a stock which is thought to be in trouble. Therefore, the monthly averaging of an index like the Dow Jones Industrials allows for better clarification of the what the price action is telling us.
So far the Coppock curve is indicating that, although we may not be at the bottom in the stock market, we are still in a relatively risk free period to invest in stocks. The following is the movement of the index from the lowest point since April 2009:
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Apr 2009: -388
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May 2009: -383
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Jun 2009: -378
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Jul 2009: -359
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Aug 2009: -321
With the Coppock Curve indicating that we're at a relatively risk free period for stocks along with the Industrial Production Index moving up and the Dow Theory bull market indication of July 23rd, it appears that we could be on our way to higher levels in the stock market and the economy over an extended period of time. Dow Theory still has a pending non-confirmation to be worked through but I will not report on that until we get a resolute signal. Touc.
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