V.12:11 (459-462): The Coppock Curve by Elliott Middleton

The Coppock Curve by Elliott Middleton

The Coppock formula was introduced in Barron's in 1962, devised by a San Antonio, TX-based technician named Edwin Sedgwick Coppock. Since then, the Coppock oscillator has been adopted and adapted by technicians around the world. Here's how to use the Coppock curve to recognize major bottoms in the stock market.

We are creatures of habit. We judge the world relative to what we have experienced. If we're shopping for a mortgage and rates have been in the teens (as they were in the early 1980s) and then drop to 10%, we are elated. If, however, they've been at 8% and then rise to 10%, we are disappointed. It all depends on your perspective. The principle of adaptation-level applies to how we judge our income levels, stock prices and virtually every other variable in our lives. Psychologically, relativity prevails.

The moving average is the simplest form of adaptation-level. Moving average crossover rules accurately signal the onset of periods of returns outside the norm, whether positive or negative. This makes moving average crossovers useful to traders who want to get a boost on entering or exiting stocks or funds. The oscillator is also based on adaptation-level, although in a slightly different way. Oscillators generally begin by calculating a percentage change of current price from some previous price, where the previous price is the adaptation-level or reference point. The mind is attuned to percentage changes because they represent returns. If you bought Microsoft Corp. stock (MSFT) at $50 and it goes to $80, you make 60% before dividends. If you bought Berkshire Hathaway (BRK) at $4,000 and it rises to $4,030, the same dollar gain, you make 0.75% before dividends. It's the percentage change that counts. Relativity again.