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In this
commentary we'll survey the intermediate-term to longer-term market terrain.
This is especially important since we're about to enter a new year, which the
Kress cycle outlook describes as potentially dangerous from a financial
market and economic perspective.
Investors
have had no shortage of worries in November, including uncertainty
surrounding the presidential race earlier this month, the upcoming
"fiscal cliff" on Dec. 31, troubles in the Middle East, and the
ongoing euro zone debt crisis. On the European front, Spain has still not
asked for the European Central Bank (ECB) to purchase its bonds, while the
Euro area finance ministers will not likely to make a final decision to
release the Euro 31.5 billion of aid to Greece until Nov. 26.
In a bull
market investors tend to ignore worries and focus on the positive news, namely
expanding corporate profits. Bull markets on average tend to run about 3-4
years before becoming exhausted. The bull market which began in March 2009
was accompanied by a major recovery in corporate profits, which was part of a
feedback loop that propelled equity prices higher in the last 3+ years.
Corporate profit momentum is in the process of revering now, which means
investors have one less positive to consider when evaluating equities.
From an
investor psychology perspective, what does it mean when fear and worry feeds
on itself and creates downside momentum? It means we're entering a bear
market, which was fated to happen at some point after the 4-year cycle peaked
in October. On an interim basis it was confirmed when the NYSE Composite
Index (NYA) decisively broke below its 60-day moving average.
 
Another
indication that conditions have turned bearish on an intermediate-term basis
is seen in the series of internal momentum indicators known as HILMO (Hi-Lo
Momentum). As the name implies, HILMO is based on the rate of change in the
daily 52-week highs and lows on the NYSE. Whenever all the main components of
HILMO (short-, intermediate-, and longer-term) are in synch to the downside
it shows that conditions have turned decisively bearish.
Of course
this negative internal condition can, and most likely will, be reversed on a
short-term basis. We're entering a favorable timeframe for equities
seasonally (December-January) and a year-end rally isn't out of the question.
The investor sentiment poll released last Thursday by the American
Association of Individual Investors (AAII) showed the percentage of their
members who are bullish were only 29 percent, while 49 percent were bearish.
This net bearish reading is one of the highest in two years and suggests,
from a contrarian standpoint, a short-term market bottom.
But what
separates a normal, healthy market from the environment we're now entering on
a longer term basis is that the rallies will likely not be sustainable beyond
a few weeks. The main trend for 2013, in contrast to the past year, will
likely be down. This is especially true with the final "hard down"
phase of the 40-year and 60-year Kress cycles upon us in 2013 and 2014.
Gold ETF
Our preferred
gold ETF, the iShares Gold Trust (IAU), hasn't yet
confirmed a buy signal according to the rules of our trading discipline, but
it has begun to show significant relative strength. Consider the following
graph which shows the meaningful spike in the gold ETF's relative strength in
just the last few days. In most cases, a spike in the relative strength line
precedes an upside move in the IAU. Accordingly we should soon have a
confirmed immediate-term buy signal for the gold ETF.
Clif Droke
2014: America’s 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:
America’s 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:
http://www.clifdroke.com/books/destiny.html
Order today to receive your autographed copy
and a FREE 1-month trial subscription to the Gold & Silver Stock Report
newsletter. Published twice each week, the newsletter uses the method
described in this book for making profitable trades among the actively traded
gold mining shares.
Clif Droke
is the editor of Gold & Silver Stock Report, published each Tuesday and
Thursday. He is also the author of numerous books, including most recently,
“2014: America’s Date With Destiny.” For more information visit
www.clifdroke.com
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