Will this 'killer wave' drown stocks?

A so-called 'killer wave' formation - the Coppock curve - has just appeared in the S&P500, world's largest index. That spells big trouble for stocks, says Tim Bennett. Here, he explains what the Coppock curve is, and what it means for you.

"A tsunami alert has just sounded for US stocks," says Dominic Picarda in the Financial Times. For only the ninth time in 83 years, a signal called the "killer wave" has hit the S&P 500 chart. This omen, he says, has signalled an average fall of 40% over 20 months nasty. So should you get out of stocks now?

The killer wave signal is derived from the Coppock curve. This is a charting tool, and like all charting tools, it's based on a simple premise: that the past is usually a reliable guide to the future. If certain patterns in charts of market prices have worked well as buy' or sell' signals in the past, then you should watch out for them in the future so you can buy or sell ahead of the crowd. There are many charting indicators around, but on this occasion, it's the work of Mr Edwin SC Coppock published in 1962 in Barron's under the title The Madness of Crowds that's getting all the attention.

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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.