How to Time a Stock Market Bottom

Jun 2, 2020

Vijay Bhambwani, Editor, Fast Profits Daily

Timing the market is difficult. At least that's what you have always heard.

But is it true?

Is it really so difficult to identify a market turning point?

Allow me to introduce you to a tool I use which has a good track record of pointing out a stock market bottom.

Very few traders have heard about it and even fewer use it.

It has served me well over the years and I think it will be of great value to you too.

In today's video, I'll show you what it is and why it is so powerful.

Let's dive in...

This is Vijay Bhambwani here and I am recording this video still from my residence because of their corona based lockdown. I hope you're staying indoors and keeping your finger on the pulse of the market because if losing track of the market has its own toll.

Today's video is a very interesting one, at least from my point of view. Can behavioural finance and behavioural analysis solve financial market problems? And if yes, how?

This is the story of Edwin Coppock, a brilliant behavioural economist off the 1960s who sorted out a huge problem for US financial market investors. If I was to a put a title on this video, I would call it the Edwin Coppock phenomena or the Edwin Coppock Hypothesis. Be that as it may, this is the story of Edwin Coppock.

You see, after the Second World War, major European economies went into a recession. The manic manufacturing process of arms and ammunition had come to a halt. Youngsters who had been drafted into the armed forces straight out of college or even between their academic education, had now come back to Europe to their parent countries, and were either looking out for jobs with part of their economic education complete or were endeavouring to complete their education and therefore were not generating income.

This was a very challenging time. Corporate earnings therefore naturally were down and the stock market was in a recession.

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Now the Church of England was having a lot of surplus finances. Religious places and places of worship normally get a lot of donations and a lot of anonymous contributions to God from the believers and followers and therefore, the Church of England had a huge surplus and the church wanted to deploy this money in the stock market, knowing fully well that sometime on the other, the domination of the British financial markets as a major power in Europe would again be exerted.

However, the Church of England had a problem. They had two conditions which needed to be fulfilled before anyone could become a consultant to the Church of England for their stock market investments. Number one, they said, this is the work of God. The words they used were Episcopal dispensation. They said you're gonna be working for God and God does not believe in paying you fees. So it has to be done free of cost.

Secondly, God does not like to lose money. Do not come and tell us that the investments that you made on behalf of the Church of England are now under water and bleeding money. You must generate a profit.

Guess what? Nobody volunteered nobody except a guy called Edwin Coppock. He stepped forward and he said, I'm willing to do the work of God and I will accept no fees. I will try that there is no loss to the church which means buying nearly at the bottom of the recessionary phase of the capital markets.

Now Edwin Coppock was gladly accepted by the Church of England and they magnanimously, of course, offered him all kinds of help in trying to basically shortlist investments, et cetera, and Edwin Coppock threw a curve ball at the Vicar of his church. He said, if God wants service from me for no free, and putting stringent conditions like I must not lose money then God has to answer a few questions for me.

The Vicar offered to help and mediate between Edwin Coppock and God. Edwin Coppock said, I want to sit in the confession box with a priest, especially when people are coming to confess their grief or their crimes committed due to grief.

Why grief? Think about it. What is a bear market? A bear market is supposed to cause you grief. Whatever you have bought, it's below your purchase price. It causes you distress. It causes you anguish. It causes you pain. You think you're denying money to your family. You think you've done injustice, harm and disservice to your near and dear ones. That is grief.

So Edwin Coppock sat in the concession boxes with many, many priests across various churches and first wanted to find out what was the most profound grief that people felt. He realised that the highest level of grief was felt by widows who had recently lost their husbands, especially if they were neither rich nor if they had children.

Now can you imagine a widow's plight? No kids, no issues to look after them in their old age, and the only breadwinner of the family is gone, right? So this was the highest level of grief.

Edwin Coppock wanted to find out how long it took for such a window to basically come over her grief. Through trial and error and listening to many confession boxes, he realised that it took an average widow between 11 to 14 months to get over the grief of a bereaved often deceased husband.

Now he figured that the loss of a near and dear one, especially of a window with little or no money and no children, must be really very acute and if she can get over that loss in 11 to 14 months, a smaller grief like a bear market either should not last any more than 11 to 14 months.

This is called the Coppock hypothesis, which tells you that no bear market should, ideally, unless it's really something humongous in nature, unknown to man, so this hypothesis tells us that between 11 and 14 months, no matter how viscous the bear market is, it comes to an end.

I am willing to stand by what I just said. Go back in time and check out all bear markets. The 1992 Harshad Mehta scam, the year 2000 Y2K stock market bubble, 2008 and eight global financial crisis and the present market, the Corona virus decline, that actually got triggered in February of 2020.

Am I saying that bear markets will last for 11 to 14 months? No, I'm not saying that at all. I am saying that they can last for no more than 11 to 14 months. Hey, they can recover faster, but not later than 11 to 14 months.

Take, for example, the global financial crisis. The market started declining on eighth of January 2008 and bottomed out by the third week of October 2008 itself, all right, 10 months give it a little.

So I would say whenever you are over round with concerns about the market as to when they will recover and how long this dark phase will kind of last in your market investment experience, do remember Edwin Coppock.

In those days, remember, Edwin Coppock did not have the luxury of computers, hyper computing power, etcetera. Everything was done by hand. Mercifully digitisation and computerisation has come to the aid of a modern day trader and we now have something called the Coppock Oscillator.

Do some work on this. Find out what the Coppock Oscillator is and I assure you, you have my word, you will be able to time the market bottoms better.

This is Vijay Bhambwani signing off from this video not before reminding you to click like on this video if you agree with what I've said. In the comments section do let me know what you think about this video and what else you want me to record for you in the future.

Do not forget to recommend this video to your family and friends and help me spread the cult of knowledge based investments.

Do take very good care of yourself, you trades, your investments, and like I said, don't take your finger of the pulse of the market.

Thank you. Have a profitable day.

Stay safe!

Warm regards,

Vijay L Bhambwani
Vijay L Bhambwani
Editor, Fast Profits Daily
Equitymaster Agora Research Private Limited (Research Analyst)

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3 Responses to "How to Time a Stock Market Bottom"

BNShanbhag

Jun 6, 2020

Great insight and guide to know probable market bottom.It waoul have been still grate if you explained it by back testing method if not prediction of futute bottomsothat we could master the art of Copock oscillators. Beg your pardon for the same for milking the milking cow and not other one.

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RK JHA

Jun 2, 2020

Hi Vijay,
It has been a couple of months since I am reading your articles on my laptab and now also on Telegram.I am thankful to you for providing your readers with pearls of wisdom based on your knowledge and experience. But your article above makes the most interesting reading as far as I am concerned. It has been a very positive piece on Investment per say. Nothing lasts for ever.
Thanks for your effort in educating us on many and varied investment avenues.
RK Jha.

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Neville

Jun 2, 2020

Does this oscillator work on individual stocks or it works best on the indices only.?

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