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Coppock calls QQQ3 turning points

November 8, 2022

Just to quickly recap, QQQ3 is an ETF which tracks the Nasdaq 100 times three. Another key difference is that it is rebalanced daily which adds a whole extra dimension of momentum. This leads to huge moves. Between December 2012, when the fund was launched and November 2021, the peak of the bull market, the shares climbed from three to 275. Since then they have been falling with the market but by much more and are currently trading around $53.

It has occurred to me that this huge volatility might make them work very well with Coppock and it seems they do. Since launch the Coppock indicator for QQQ3 has changed direction eight times and the signals have been good ones. The one that was a bit of a whiplash (quickly reversed) was a sell signal in March 2020 which was reversed in June 2020. If you had also been using the moving averages and trend line breaks I think you might well have come out of this without loss and then been invested for the spectacular run that followed. Most recently it turned down, from plus 1,652.2 in September 2021 (August was the peak; September the first month with a lower figure) which gave excellent advance warning of the bear market to come.

I have done my usual forward projections and these show the Coppock indicator, currently minus 547 and falling, turning higher in March 2023, which is my predicted date for the next bull market to begin. This is exciting because March 2023 is getting closer all the time. The projected low point for February 2023 is a massive minus 741.7. This means we will have had a serious bear market.

Research suggests that it is not so much the scale of the bear market but the depth of the recession which leads to a strong new bull market. My impression is that it is a bit of both. Stockmarkets nosedived in 1974, 2003 and 2008 and all those occasions were succeeded by massive long running bull markets.

The big question now is are we going to get a recession and if so how deep is it going to be. I have been thinking about this from a UK point of view, logical because that is where I live. What is happening is incredible. Utility bills are exploding to unimaginable levels. My bills this year are going to be in five figures. Interest rates have climbed more dramatically than at any time in recorded history. And we are hearing that Rishi and Jeremy Hunt are planning to increase taxes by £50bn a year.

The burden of all this falls on middle England of which most of us are a part. Super rich people escape most of this. They buy houses for cash, turn off their boilers and work from Bermuda for a while or whatever. Poorer people don’t have mortgages and if they live in social housing it is usually easy to heat. They don’t pay taxes; they receive money from the state.

That is all fine and part of living in a civilised society. Some people need looking after but the shock for Middle England and probably for its counterparts in Europe and the US is staggering and I don’t think we have seen the impact of that yet. It is like a one, two to the chin and then a good kicking while your man is down.

Can anyone win an election held against that background? I have no idea. Will Trump stand and win in the US; sounds like a definite maybe. Imagine an election with two guys approaching their 80s or in their 80s squaring up to each other. Will they even survive to complete their term? Will they need prompts every time they open their mouths so they don’t forget what they are talking about? If it wasn’t happening you couldn’t make it up.

At least we have a guy in his 40s as prime minister which is kinda cool. Maybe he will remember his lines.

What does seem very possible from all this is that we could have a recession coming and the downturn could be as sharp as the preceding burst of inflation, a recessionary shock to follow the inflationary shock. If that does happen expect bankruptcies and serious corporate pain but out of that could emerge an amazing bull market.

Strategy

An interesting feature of my expectation that Coppock is going to change direction from down to up in March 2023 is that this will colour my attitude to golden cross and trend line buy signals as we approach that date.

And the other thing to remember is this is all going to happen. One day we are going to get buy signals all over the place.

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