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Among the components of the 60-year economic super cycle
due to bottom this fall is the 10-year cycle. It is this cycle which is
the core component of the super cycle and is responsible for this year��s financial market behavior. The upcoming bottom of this
cycle, followed by the commencement of a new 10-year cycle, will also herald
a major opportunity for investors in the coming 1-2 years.
The 10-year cycle is unique among the Kress cycles in
that it��s one of the few cycles whose peak is not a
separate cycle. When other cycles in the Kress series peak, the
half-cycle component forms a distinctive cycle by itself. For example,
when the 4-year cycle peaks the 2-year cycle bottoms simultaneously; and when
the 12-year cycle peaks the 6-year cycle bottoms. Since there is no
5-year cycle in Kress cycle theory, the 10-year cycle peak is a true peak.
Another unique aspect of the 10-year cycle is that it��s the only one of the twelve yearly cycles that bottoms at the
same time each decade, namely in the fourth quarter of year four. This
is the reason for the ��Year Five Phenomenon�� which sees the stock market rally in every fifth year of each
decade. The lifting of the 10-year cycle downside pressure at the end
of year four creates a major lift for equity prices during the year that
follows.
In the 10-year cycles of the past two decades the cycle
has been relatively benign. This normally happens when bull market
conditions are prevalent. Only when a bear market is underway, as in
1974, does the 10-year cycle bottom emphatically. The last two 10-year
cycle bottom years, in 1994 and 2004, saw lateral trading ranges develop in
the Dow and S&P for much of the year prior to the cycle bottom. After
the cycle bottomed in October ��94 and October ��04, the indices broke out of their ranges and went on to higher
levels as a new 10-year up cycle kicked off.
The ��hard down�� phase of the 10-year cycle in 2014 has produced a lateral trading
range in the Russell 2000 Small Cap Index (RUT). In the Dow, however,
the influence of the 10-year down cycle has been much more benign and the end
result has been an upward-sloping trading range for the Dow (see chart
below). The implication behind this pattern is that a secular bull
market is well underway. Accordingly, the upcoming cycle bottom will
likely produce higher stock prices in 2015 as a new 10-year cycle will act as
a favorable tail-wind for stocks (instead of an unfavorable head-wind).
As previously mentioned, the 10-year cycle bottom will
serve as a catalyst for the famous ��Year Five
Phenomenon�� in 2015. This is one of the facets
of the 10-year cycles that is worth delving into, namely the tendency for the
year following the 10-year cycle bottom to be a stellar one for stock market
investors. Since the 10-year cycle always bottoms around the start of
the fourth quarter of the fourth year of the decade, the fifth year of the
decade is the year that typically gets a major boost from the newly formed
10-year up-cycle. The 10-year cycle then peaks around the start of the
fourth quarter of the ninth year of the decade. Thus the years X-5 and
X-9 of the decade nearly always see impressive gains made in equity
prices.
In his book, The Right Stock at the Right Time
(John Wiley & Sons, 2003), author and trader Larry Williams made the
following observation about the fifth year of the decade:
��What we see is that in 11 out
of 11 times the fifth year in the decade produced a rally or a market-up
move, making it the strongest year in the 10-year pattern��.Without a doubt the fifth years of the decades have been where
the bulk of wealth has been made. [Yale Hirsch��s] work showed a total gain of 254 percent in the five years���� Clearly, there is money to be
made in 2015 with the ��Year Five Phenomenon�� at work.
Once the 10-year cycle bottom is in the rearview mirror,
we should see some important changes taking shape. A major reason for
the sluggish economic recovery until now has been the head-winds created by
the long-term cycle. With a brand new cycle underway starting in
October, 2015 should be a breakout year for the U.S. economy. Consumer
spending will increase as the momentum behind the recovery gets a huge push
from the newly formed cycle, as will business investment spending.
Equities should also post yet another positive year as
the ��Year Five Phenomenon��
kicks in thanks to the 10-year cycle bottom. Watch for small investors
to start coming off the sidelines next year. They��ll put more of their money into stocks as they slowly recognize
the reality of the secular bull market. Commodities should also benefit
from the cycle bottom as investors begin to minimize their heavy holdings of
cash and Treasury.
With the 10-year cycle bottom only a few weeks away, the
exciting opportunities of 2015 and beyond should make the uncertainty of
recent years more than worth the wait.
Kress Cycles
Cycle analysis is essential to successful long-term
financial planning. While stock selection begins with fundamental
analysis and technical analysis is crucial for short-term market timing,
cycles provide the context for the market��s
intermediate- and longer-term trends.
While cycles are important, having the right set of
cycles is absolutely critical to an investor��s
success. They can make all the difference between a winning year and a
losing one. One of the best cycle methods for capturing stock market
turning points is the set of weekly and yearly rhythms known as the Kress
cycles. This series of weekly cycles has been used with excellent
long-term results for over 20 years after having been perfected by the late
Samuel J. Kress.
In my latest book ��Kress
Cycles�� I explain the weekly cycles which are
paramount to understanding the timing of stock market turning points.
Never before have the weekly cycles been revealed which Mr. Kress himself
used to great effect in trading the SPX and OEX. If you have ever
wanted to learn the Kress cycles in their entirety, now is your chance.
The book is now available for sale at:
http://www.clifdroke.com/books/kresscycles.html
Order today to receive your autographed copy along
with a free booklet on the best strategies for momentum trading. Also
receive a FREE 1-month trial subscription to the Momentum Strategies Report
newsletter.
Clif Droke is a recognized authority on Kress cycles
and internal momentum, two valuable tools which have enabled him to call most
major stock market turning points from 1997 through the present. He is
the editor of the Momentum Strategies Report newsletter, published three
times a week since 1997. He has also authored numerous top-selling
books, including his most recent one, ��Kress
Cycles.�� For more information visit www.clifdroke.com
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