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Recently I asked a question that I suspect many followers of the Kress
cycles have asked at some point. Here it is:
I
have been following your discussion on the Kress cycles for years. When
I combine the market analysis from other [financial analysis] sources I am
somewhat perplexed, however. I would desperately desire to make a keen
strategic maneuver in the next 24 months with my retirement funds to, first,
avoid the next crash predicted by the "hard down' phase of the Kress
cycle. But then secondly, Id like to be in the market to take
full advantage of the ensuing bull market.
If I
fully believe the Kress 2014 crash scenario and pull out completely in the
coming months, my past luck would have me completely miss the Raging Bull
market. On the other hand, if I commit to being in the market to ride
the Bull, I could get annihilated again if Kress's 2014 crash is as predicted
.
Can
you please expound on how a long term investor, like me, can negotiate this
coming period to minimize the risk of being on the wrong side of the wave
when it gets here? I'm feeling like a deer in the headlights and I'll
bet I'm not alone.
To answer this question, I would reiterate that the Kress cycles indeed, no theory of market cycles
should be used exclusively to make investment, or especially, trading
decisions. As
Ive stated many times before, the
yearly Kress cycles should be viewed as a rough guideline, or road map, for
the overall market path. More specifically, only when any of the major
yearly cycles within the 120-year Kress cycle series are hard
down should you consider embracing a bearish market
stance.
For instance, if the 10-year cycle is scheduled to bottom (as it last
did in 2004 and will again in 2014) then you can become increasingly
defensive in your market posture as the cycle bottom approaches in
(especially) the second and third quarters of the cycle bottom year.
Conversely, if a major cycle is peaking (as the 10-year cycle did in 2009),
then you can probably safely maintain a bullish posture through much of the
year.
The final hard down
phase of any of the yearly cycles is partly determined by the configuration
of the Kress weekly and quarterly cycles. It helps to know the position of these cycles when
evaluating the coming market year on an annual basis. There is some
validity, however, in assuming a net bearish market stance as we approach the
final year of the 120-year bottom, namely the year 2014.
How can an investor know when to exit his long positions and return to
a net short or all-cash position? Answer: By employing a disciplined
technical trading approach to the stock market. For instance, even if
you believe 2013 will be an extremely volatile year as it progresses due to
the conflicting cyclical and economic currents (as I do), you can still
maintain a net bullish investment posture as long as your stocks and ETF
positions are, for instance, staying above the rising 10-month or 30-month
moving averages. See
chart example below.
Another strategy that Bud Kress and I discussed many years ago was
that of maintaining a bullish market posture from an
intermediate-term investment standpoint as long as the 120-day moving
average in the S&P 500 Index is in a rising trend. Students of the
Kress cycles will of course instantly recognize the numerological
significance of 120 as this number correlates to the Kress 120-day, 120-week
and 120-year cycles.
If you wanted to play it closer to the hip, you could even use the
30-day and 60-day MA combo to enter or exit trading positions within a
volatile year. (FYI, I employ a similar technical discipline in theMomentum Strategies Reportin order to participate in
rallies even in bear market years). Remember, just because a major
yearly cycle is in the hard down
phase doesnt necessarily mean that all stocks
will be declining. As
the old Wall Street saying goes, Theres
always a bull market out there somewhere. This is why it pays off to vigilantly scan the
charts of actively traded NYSE and NASDAQ stocks regularly for trading
opportunities.
In short, dont let the Kress cycles dictate
your short-term trading or investment decisions unless there is valid reason
for doing so (e.g. the cycle is in the final stage of bottoming).
Clif Droke
2014: Americas Date With Destiny
Take a journey into the future
with me as we discover what the future may unfold in the fateful period
leading up to and following the 120-year cycle bottom in late 2014.
Picking up where I left off in my
previous work, The Stock Market
Cycles, I expand on the Kress cycle narrative and explain how the
120-year Mega cycle influences the market, the economy and other aspects of
American life and culture. My latest book, 2014: Americas
Date With Destiny, examines the most vital issues
facing America and the global economy in the 2-3 years ahead.
The new book explains that the
credit crisis of 2008 was merely the prelude in an intensifying global credit
storm. If the basis for my prediction continue true to form
namely the long-term Kress cycles the
worst part of the crisis lies ahead in the years 2013-2014. The book is now available for sale at:
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Strategies Report newsletter.
Clif Droke is the editor of the
three times weekly Momentum Strategies Report newsletter, published since
1997, which covers U.S. equity markets and various stock sectors,
natural resources, money supply and bank credit trends, the dollar and
the U.S. economy. The forecasts are made using a unique
proprietary blend of analytical methods involving cycles, internal momentum
and moving average systems, as well as investor sentiment. He is
also the author of numerous books, including most recently 2014: Americas Date With Destiny. For more information visit www.clifdroke.com
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