Further to my post of yesterday, arguing that government bond yields have in all likelihood bottomed (see “Is the yield curve pointing to better tidings“), I have also analyzed the Coppock indicator for a longer-term perspective.
The Coppock curve is a long-term price momentum indicator used to recognize major bottoms in financial markets. For those who are mathematically minded, the indicator uses a monthly time scale and is the sum of a 14-month rate of change and 11-month rate of change, smoothed by a 10-period weighted moving average (see skyjuice for formula).
The market will typically reverse its trend whenever the Coppock curve reverses from an extreme low or extreme high. The graph below shows the historical relationship between the Coppock indicator and the US 10-year Treasury Note yield going back 20 years. A picture paints a thousand words …
Source: Plexus Asset Management (based on data from I-Net Bridge)
“You pays your money and takes your chance”, but it would seem as if the odds are stacked in favor of rising long-term interest rates for a while to come.
