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Using the Coppock Indicator to Anticipate 6m Golden Cross Buy Signals

January 22, 2024

Lateral thinking (horizontal thinking) is a form of ideation where designers approach problems by using reasoning that is disruptive or not immediately obvious. They use indirect and creative methods to think outside the box and see problems from radically new angles, gaining insights to help find innovative solutions.

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I have been doing a little lateral thinking of my own. I have noticed that golden cross buy signals based on the moving averages I use and 6m candle sticks coincide with Coppock buy signals. My first reaction was to stop using Coppock because it seemed I didn’t need it. I realise it is a bit more subtle than that because I can project Coppock forward to anticipate buy signals and this creates an exhilarating prospect because it suggests that I should be able to use Coppock to anticipate 6m golden cross buy signals and look how powerful they are.

Every time one of these golden crosses occurs you need to pile into QQQ and look favourably on shares generally. This has led to another thought. I look at the charts of QQQ and the leveraged version separately; as you can see, they behave somewhat differently. QQQ is at new peaks like the Nasdaq 100 but QQQ3 has some way to go before it reaches new peaks.

What we know it will do is track the direction of QQQ, which in turn will track the Nasdaq 100. So we can use Coppock to anticipate buy signals on the Nasdaq 100, which will tell us what QQQ is going to do which, in turn, will tell us the DIRECTION in which QQQ3 will go. This is valuable information because whatever QQQ does QQQ3 will do more.

We also know something else interesting. Coppock is a weighted momentum indicator which moves up and down in long slow swings. Buy signals occur when it turns higher having first become negative. As I have noted in the past this means that once it turns negative a buy signal may not be imminent but we are in buying/ accumulation territory. We can then read through from Coppock to QQQ3 and start accumulating shares in the latter or any share where we find the fundamentals sufficiently compelling.

Buy Signals Cropping up Everywhere We Look

Buy signals are presently all over the place using the ultra-long-term charts which I favour. This is why I feel positive about prospects for US shares. Since these signals are rare that makes now an important time for investors. Act now or face a long wait until the next such opportunity.

When to Sell

Since we are now in buy/ hold/ never sell territory the question investors will be starting to think about is when to sell. Selling is harder and not important if you are following a never-sell strategy. It also seems likely that since we are at an early stage of a new bull market selling is not going to be an issue for a while. My favourite aid on when to sell is my benchmarks. When a majority of them are turning down and giving sell signals it is time to go liquid – sell everything and wait for better times.

An alternative is to ruthlessly prune your portfolio but this can end up being death by a thousand cuts as you sell some, then more and eventually everything. A further option is to sell nothing and let the duds sell themselves by falling to low levels where they don’t influence your portfolio. Many funds and trackers do this and it works well for them.

Look at QQQ. The shares have had some big falls but always end up marching onwards and upwards. I have too much leverage to hang on so I have to sell which makes my benchmark strategy (sell when a majority of shares look bearish) important to me.

Surfing Kamikaze by Endlessly Rotating into Strongest Stocks

Selling is academic at the moment unless you are following my Kamikaze Surfing strategy. This is a new one so just to recap it involves (a) topping up on weakness and buying more on strength (you don’t have to do this part but the oomph effect is incredible) and (b) endlessly rebalancing your portfolio to focus on the best performers, which may include shares you have sold only a short time earlier. I followed this strategy in 2021 and have never made money so fast in my life. It was an exhilarating ride.

Am I going to do it now? Am I ever! I have already begun. I love aggressive, wild water rafting style investing and this one is insane.

I don’t want to try and give subscribers a blow-by-blow account of what I am doing. I want some privacy; I don’t want to end up with egg on my face when I do something stupid and we all need to develop an investment style which suits our personalities. My style is the wilder and more aggressive the better. Yours may be more prudent and very likely more profitable in the longer term. Remember that even if you do Kamikaze with just a small starting amount the effects can be amazing and beginner investors on IG can never lose more than their initial investment.

I am not sure I will do it for all my shares. Where I have total conviction I will be reluctant to sell against such a bullish overall stock market background.

Shorter-term Moving Averages

I am using 6m candlesticks (each candlestick equals six months of trading) at the moment partly because we are at a moment in the stock market cycle when they are giving excellent signals. At other times or just for different reasons I may look at shorter time scales. My main go-to shorter-term moving average is based on 1m candlesticks. Shorter than that generates too many signals for me and too much risk of whiplashing where you keep buying and selling for small losses.

Longer-period candlesticks can also be interesting to study.

Longer-Term Moving Averages Tell A Story

In this chart, each candlestick represents a year. The whole chart is longer than most people’s lifetimes. It shows the advantage of being a very long-term investor, living a very long time and being unusually patient. I have marked four buy signals on the chart, missing out on one right at the beginning. Five buy signals in a lifetime make them precious.

This chart is so long-term that even the latest sell-off did not trigger a subsequent buy signal though the averages did flatten out a bit. This makes the case that 2022 was a correction in an ongoing bull market, which makes sense to me.

The technology revolution is driving this bull market and that has not missed a beat. There is no telling where this bull market is going but a reasonable guess is – A LOT HIGHER!

Strategy – Keep Taking the Pills

As in staying bullish, keep buying shares.

On this ultra long-term chart, there is only one buy signal for Microsoft in nearly 40 years although there would at least have been a climb-aboard buy signal from rising averages in the middle 1980s if there had been the back history of price action to make the calculations.

Microsoft is Classic Buy and Hold

The reason why I am focused on this chart is because of the two long periods of rising prices, before and after the great consolidation in the middle of the chart. Helped by 20:20 hindsight it is obvious what we all should have done. Buy early in the rise when it was already apparent that Microsoft was playing a huge role in the desktop revolution and so had an exciting story to go along with the great chart and the great growth.

After that we should have held on, only selling in 2000 when the blue m/a started falling. But here’s the thing. How many investors did that? My guess is very few. Buying and holding like that is what Bill Gates did as the co-founder of the business and what Warren Buffett does, time and time again, but very few of the rest of us are so resolute. We, mere mortals, are far too influenced by short-term considerations, scary newspaper reports and all the negative stuff going on in the world. We don’t do what turns out with hindsight to be the obvious thing to do. We don’t have that incredible faith in our judgement and that remorseless patience.

The buy signal after the great Microsoft consolidation was a cracker, came in 2013 and coincided closely with the appointment of Satya Nadella as CEO in 2014 – a massive ‘something new’, which proved to be a game changer.

Hold Nvidia When the Moving Averages are Climbing

Let’s look at a very long-term, candlestick chart of Nvidia and see how that stacks up. It is not a mass of green like the Microsoft chart but there is one immediate observation we could make. It has been very profitable to hold these shares whenever the moving average lines are rising.

There could be some 20:20 hindsight with this chart. There was a big red candlestick in 2022 and a big green candlestick in 2023. This chart might have seemed to have turned down in early 2023 and then reversed and carried on higher as the year unfolded but that’s OK. You don’t have to be perfect to do well out of this share. Maybe we sold them in early 2023 and then bought them back again. We still stand to make a ton of money and remember that we could use Coppock to anticipate the signals.

There is another crucial point. This strategy only works with exciting shares in world-beating companies. If it is not a world-beater or at least a potential world-beater don’t even think about it. Is Nvidia such a company? Of course, it is; that is what I mean by saying don’t be afraid of the obvious. Indeed, I would almost go further and say if it is not obvious that it is a potential world-beater it probably isn’t. This analysis tells us that we should be holding Nvidia and if we do anything we should buy some more.

Note that on Quentinvest my 3G rule (great growth, great story, great chart) means that we ONLY look at world-beating shares. I don’t do boring. If you have boring shares in your portfolio for goodness sake get rid of them.

Being a crazy optimist can be a successful strategy in the stock market because, contrary to the wiseacres, trees can grow to the sky.

Share Recommendations

Invesco QQQ Buy @ $421.18

Wisdomtree QQQ3 Daily Leveraged. QQQ3. Buy @ $167.53

Microsoft. MSFT. Buy @ $398.50

Nvidia. NVDA. Buy @ $594.50

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