June 1 (Bloomberg) — U.S. stocks are worth buying for the first time in six years, according to an indicator that has signaled bull markets all but once since World War II.
The CHART OF THE DAY shows this barometer, known as the Coppock guide or Coppock curve, for the Standard & Poor’s 500 Index. The S&P 500 is also depicted.
The gauge was named for E.S.C. Coppock, who introduced what he described as a “very-long-term buying guide” in an October 1962 story for Barron’s. Leuthold Group LLC has a version known as VLT Momentum that Steve Leuthold, the research firm’s founder, developed after reading the Barron’s article.
Coppock, who died almost two decades ago, wrote that his indicator gave “a picture of the emotional factor” behind stock swings. He advised investors to buy shares in anticipation of “an important, sustained advance” when the guide started to increase from less than zero.
That kind of shift occurred last month, according to data compiled by Bloomberg. The guide climbed to -409.4 from April’s -417.2, the lowest reading since June 1938. Calculations based on the Dow Jones Industrial Average showed a similar reversal.
Coppock calculated the difference between an index’s value at the end of each month and its closes 11 months and 14 months earlier. He added these figures together and computed a 10-month average that gave greater weight to the latest numbers. While he used the Dow industrials in Barron’s, he wrote that a broader benchmark might be an enhancement.
The S&P 500 sent more accurate signals than the Dow in the postwar era, Bloomberg’s data show. U.S. stocks advanced 16 of 17 times in the first year after the broader index’s Coppock curve turned higher. The exception followed a December 2001 reversal. For the Dow, the success rate was 13 of 19.
Source: Bloomberg via reader Joe.