Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Long-term Cycles vs. Short-term Market Potential

Stock-Markets / Cycles Analysis Nov 07, 2011 - 04:25 AM GMT

By: Clif_Droke

Stock-Markets

Best Financial Markets Analysis ArticleA reader has asked the following question, which addresses a problem confronting many investors right now: 
 
“I always appreciate the Kress Cycle analysis. Yet, I must say that I am confused. For quite some time, you have talked about the ‘hard down’ phase and the topping of most of the important cycles that was supposed to be taking place now through 2013/2014. And yet, now it seems the [weekly] cycles are calling for a rally through the end of the year.  The Elliott Wave folks have been talking that the sky is about to fall in as well and yet there is great divergence in that camp with some still calling for that while others say that it may now have been pushed into 2012.  I keep looking for a retest of the bottoms that holds at which point I would pick up more shares, but so far, no retest has occurred.” 

This reader went on to question how the yearly cycles can be suggesting one market outcome (namely a bearish one) while other factors seem to be pointing to a recovery.  This is a valid question in view of the activity in the financial market since the early October bottom.  While it’s true that the 120-year cycle, along with its component cycles, are in decline between now and late 2014, there are other factors at work and this is at the heart of the matter we’ll be discussing in this latest installment. 
 
At any given time the position of the weekly cycles must be taken into account when evaluating the stock market.  These cycles have a greater impact on the near-term direction of the stock market than the yearly cycles unless the yearly cycles happen to be bottoming (as with the 6-year cycle bottom in late 2008).  As the “hard down” phase of any cycle is the final 10% of the cycle’s duration, the 120-year cycle has been in its final “hard down” phase since 2002.  Yet this fact didn’t negate the upside potential of stocks in the years between 2003-2007 as well as the periodic rallies we’ve witnessed in the intervening years.  This is because a number of yearly cycle components of the 120-year cycle have been rising in the intervening years, including: the 12-year cycle (until late 2008), the 10-year cycle (until late 2009), the 6-year cycle (until 2011) and the 4-year cycle (until late 2012).
 
Another factor that investors sometimes fail to account for is central bank policy.  When Federal Reserve policy is aggressively “loose”, as it was in the years 2001-2003 and again in 2009-2011, any yearly or even intermediate-term weekly cycle that happens to be in the ascending phase will tend to exert a bullish impulse on stocks.  The liquidity factor is extremely important and should never be discounted when evaluating the yearly cycles. 
 
Investors are also starting to question the outlook for 2012 in view of the fact that the 4-year cycle is peaking next October.  The question is whether the 4-year cycle is strong enough by itself to stabilize the stock market when every other components of the 120-year cycle is in its final descent.  A superficial examination of this question would lead to a negative answer.  But if central bank policy is aggressive enough to counteract the deflationary impulse created by these cycles heading into 2012, it’s possible that the rising 4-year cycle could single-handedly provide support and prevent a repeat of the credit crash until the cycle peaks in October 2012. 
 
Doing so would require something along the lines of a coordinated monetary stimulus, a global QE3 if you will.  If the world’s major central banks all combined to provide ample liquidity in the coming months it’s possible that the peaking 4-year cycle could “rescue” the U.S. economy and financial market for one more year until the irresistible deflationary force of the other, declining yearly cycles in the 120-year series hits hard in 2013-2014.
 
Long-term cycles can be used for long-term investment planning but aren’t the best tools for short- and intermediate-term trading and investing.  The lesson I had to learn many years ago -- one which all too many cycle analysts/traders seem not to have learned -- is that while cycles can be useful guidelines as to the overall direction in which stocks are headed in the longer term, they can't be relied upon with any consistency when it comes to making short-term timing decisions.  And the short-term is where most of the trading profits come from.  (As the cycle analyst Bud Kress once said, the short-term leads to the intermediate-term, which leads to the long-term, i.e. all profitable trading positions must begin with the short-term outlook).  Cycles can often be used to identify a turning point in the market, but just as often these turning points fail to materialize due to short-term factors in liquidity or market psychology.  The short-term cycles can sometimes be whipsawed by these factors. 
 
I believe we'll see some potentially heavy downside in the years 2013 and 2014 while the 120-year cycle is in its final descent.  But also keep in mind that along the way there will be tradable rallies since markets rarely go straight down for any length of time.  Indeed, markets never take a straight path -- whether up or down.  There will definitely be rallies along the path to 2014 and depending on what the Fed is doing, those rallies could at times be fierce. This is where having a reliable trading discipline comes in.  And a reliable trading discipline should be based mainly on proven technical market tools instead of an unbalanced reliance on cycles only.
 
New Economy Index
 
As addressed in the previous commentary, the New Economy Index (NEI) has been confirming that the U.S. retail sales and economic outlook is positive for the near term outlook.  Below is the latest update of the NEI chart.
 
 
The interpretation of this chart is straightforward: when the indicator itself is in a rising trend above its 12-week (black line) and 20-week (red line) moving averages, the U.S. retail spending economy for consumers and businesses is considered to be improving (or at least holding steady).  If the two moving averages are in a confirmed decline, then the short-term retail economic outlook is bearish.  To date this indicator has reflected a buoyant economic outlook in terms of retail spending as we head into the critical Christmas shopping season. Thus, the economy will probably be able to end the year on a relatively positive note in spite of the fact that the middle class is still in a wage and balance sheet recession and the jobless rate is still high.
 
Confirming the positive economic bias that the NEI has been reflecting in recent months is the latest U.S. unemployment report.  On Friday, Nov. 4, it was announced that the unemployment rate dipped to 9% in October, a slight improvement from recent months.  The report showed that 80,000 net new jobs were created last month with the professional and business service sector showing the strong gains.  Health care, education, and leisure and hospitality sectors also added jobs last month. 
 
As the Neil Irwin of the Washington Post observed in his reporting of the unemployment numbers, “The latest job figures point to a labor market frozen in place, neither adding enough jobs to put the vast armies of unemployed – 13.9 million people – back to work, nor falling into an outright contraction or shedding jobs.”  He added that the report “at least offers relief from the fear of double-dip recession, pointing instead to slow-and-steady economic growth.”
 
The present economic climate is less than stellar and for many Americans job prospects are dismal.  This isn’t your father’s economic recovery.  But it’s finally starting to look like the Fed’s QE1 and QE2 loose money programs were mildly successful, at least in terms of keeping the economy from continual contraction in the face of overwhelming deflationary pressure.  Operation Twist, the Fed’s current program of buying long-dated Treasuries to keep interest rates low, could provide additional support for a while. 
 
The Fed faces a major stumbling black in its ongoing attempt at fighting deflation, however.  It’s the hedge fund factor.  Each time the Fed ramps up liquidity, hedge funds take advantage of this by bidding up commodity prices, which in turn puts upward pressure on consumer prices and undermines the chances for a significant job market recovery.  It’s a classic catch-22 situation, for if the Fed does nothing then deflation will eventually wipe away all the progress made since 2009.  Yet if the Fed aggressively pursues a loose money policy (and only an aggressive approach can succeed against long wave deflation), it risks pushing up commodity prices even further.  Perhaps this is why Fed Chairman Bernanke is content with pursuing a less aggressive policy in Operation Twist.
 
Along with selling short-term Treasuries and purchasing longer-dated Treasuries, the Fed will also reinvest maturing agency bonds and mortgage assets in agency backed mortgage debt with the goal of lowering interest rates on home mortgages, car loans and other big-ticket items.  The Fed hopes this will stimulate demand for consumer credit as well as increased business investment and therefore rescue the economy.  The Fed has an outside chance of maintaining the current level of unemployment in 2012 while the 4-year cycle peaks if the eurozone debt crisis doesn’t blow up between now and then.  This will be an exceedingly difficult balancing act on Bernanke’s part but with coordination from other central banks it’s very possible that the economy can see one more year of relative stability before the expected Kress Cycle Tsunami hits in 2013-2014.
 
Gold ETF
 
As we talked about in last week’s commentary, the intensity of the recent breakout in the SPDR Gold Trust ETF (GLD), our gold proxy, up suggested that the move was more than just short covering or reactionary buying due to the news coming out of Europe.  It further suggested that this could be the start of an interim recovery for gold.  This recovery is now under way and as the daily chart shows, GLD has established a pattern of higher highs and higher lows, which is the basis of an incipient recovery.  Ironically, gold stands to benefit from both the uncertainty surrounding the European sovereign debt situation as well as any jubilation resulting from makeshift plans for dealing with the debt (as this entails dollar weakness).
 
 
Gold & Gold Stock Trading Simplified
 
With the long-term bull market in gold and mining stocks in full swing, there exist several fantastic opportunities for capturing profits and maximizing gains in the precious metals arena.  Yet a common complaint is that small-to-medium sized traders have a hard time knowing when to buy and when to take profits.  It doesn’t matter when so many pundits dispense conflicting advice in the financial media.  This amounts to “analysis into paralysis” and results in the typical investor being unable to “pull the trigger” on a trade when the right time comes to buy. 
 
Not surprisingly, many traders and investors are looking for a reliable and easy-to-follow system for participating in the precious metals bull market.  They want a system that allows them to enter without guesswork and one that gets them out at the appropriate time and without any undue risks.  They also want a system that automatically takes profits at precise points along the way while adjusting the stop loss continuously so as to lock in gains and minimize potential losses from whipsaws. 
 
In my latest book, “Gold & Gold Stock Trading Simplified,” I remove the mystique behind gold and gold stock trading and reveal a completely simple and reliable system that allows the small-to-mid-size trader to profit from both up and down moves in the mining stock market.  It’s the same system that I use each day in the Gold & Silver Stock Report – the same system which has consistently generated profits for my subscribers and has kept them on the correct side of the gold and mining stock market for years.  You won’t find a more straight forward and easy-to-follow system that actually works than the one explained in “Gold & Gold Stock Trading Simplified.” 
 
The technical trading system revealed in “Gold & Gold Stock Trading Simplified” by itself is worth its weight in gold.  Additionally, the book reveals several useful indicators that will increase your chances of scoring big profits in the mining stock sector.  You’ll learn when to use reliable leading indicators for predicting when the mining stocks are about o break out.  After all, nothing beats being on the right side of a market move before the move gets underway. 
 
The methods revealed in “Gold & Gold Stock Trading Simplified” are the product of several year’s worth of writing, research and real time market trading/testing.  It also contains the benefit of my 14 years worth of experience as a professional in the precious metals and PM mining share sector.  The trading techniques discussed in the book have been carefully calibrated to match today’s fast moving and volatile market environment.  You won’t find a more timely and useful book than this for capturing profits in today’s gold and gold stock market.
 
The book is now available for sale at:
 
http://www.clifdroke.com/books/trading_simplified.html

By Clif Droke
www.clifdroke.com

Clif Droke is the editor of the daily Gold & Silver Stock Report. Published daily since 2002, the report provides forecasts and analysis of the leading gold, silver, uranium and energy stocks from a short-term technical standpoint. He is also the author of numerous books, including 'How to Read Chart Patterns for Greater Profits.' For more information visit www.clifdroke.com


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in