Taking a look at the NYSE Composite old Support/Resistance area at 9678. This particular horizontal trend line has a strong confluence reading. Now the market has cleared many barriers, NYSE could draw to 9678 area very quickly.
We also want to take a look at the NYSE new high and low areas. HIGN 500 readings are considered overbought and LOWN readings over 500 are considered oversold. When looking for historical data HIGN/LOWN comparison is essential.
MYHN and MYLN are the year-to-date high and low readings. If MYHN readings surpass 1000, NYSE is considered overbought. If MYLN readings surpass 1000, NYSE is considered overbought.
Important: When MYLN-MYHN and HIGN-LOWN readings are both above average, you look for larger corrections within 90 days.
Compare chart to Hindenburg Omen
A technical indicator named after the famous crash of the German airship of the late 1930s. The Hindenburg omen was developed to predict the potential for a financial market crash. It is created by monitoring the number of securities that form new 52-week highs relative to the number of securities that form new 52-week lows - the number of securities must be abnormally large. This criteria is deemed to be met when both numbers are greater than 2.2% of the total number of issues that trade on the NYSE (for that specific day).
Traders use an abnormally high number of 52-week highs/lows because it suggests that market participants are starting to become unsure of the market's future direction and therefore could be due for a major correction. Proponents of this indicator argue that it has been very accurate in predicting sharp sell-offs in the past and that there are few indicators that can predict a market crash as accurately.
We got here very quickly as most of us thought. Not ready to say parabolic bullish move is over. Looking at that long term resistance line as a major event.
QuantitativeExhaustion
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The Next Great War and the 24-Year Stock Market Cycle
The threat of war against the United States is making headlines and roiling investors' nerves. While full-scale war is likely not imminent, it's something worth considering in light of where we stand in the long-term War Cycle.
North Korea has stolen the geopolitical spotlight in recent weeks after making military threats against both the U.S. and South Korea. North Korea is the target of UN sanctions in response to a nuclear weapons test performed by the country in February. In reference to the test a spokesman for North Korea's Foreign Ministry declared the nation has a right to initiate "a preemptive nuclear attack to destroy the strongholds of the aggressors."
Most recently, North Korea said it had final approval to launch "merciless" military strikes on the U.S. South Korea's defense minister said North Korea had moved a missile with "considerable range" to its east coast. North Korea recently announced it would cancel all nonaggression pacts with the South, according to the Los Angeles Times.
The obstreperous saber-rattling by North Korea's supreme leader, Kim Jong Un, seems to have gone beyond the boundaries of idle threats. Are we to fear an outbreak of war involving North and South Korea - and possibly the U.S. - in the near future?
To answer this question we need first to realize where we are in the context of the 24-year cycle. This particular cycle, a subset of the Kress 120-year cycle, has been identified as the long-term "war cycle" among industrialized countries. The most recent 24-year cycle bottom occurred in October 1990. This ended a vicious bear market for the stock market. The banking sector was particularly hard hit by this particular 24-year cycle as 1990 was the worst part of the infamous S&L crisis and saw the failure of more than 100 small banks. The 24-year cycle bottom of 1990 marked the beginning of the great 1990s bull market, which extended until early 2000.
Since 1894 when the previous 120-year Grand Super Cycle bottomed and a new one began, there have been four military conflagrations at each subsequent bottom of the 24-year cycle. Most of these wars have been major in scope. The first such instance of war occurred in the years leading up to 1918, which saw the first 24-year cycle bottom of the current 120-year cycle. The 24-year cycle that bottomed that year saw the ending to the First World War. Remembering that the final "hard down" phase of the 24-year cycle approximates to almost two-and-a-half years, this represented roughly the second half of that major war, a war that involved the United States.
The next 24-year cycle bottom occurred in 1942. This year represented the United States' entry into the Second World War against Japan and the Axis Powers. Both the 1918 and the 1942 cycle bottom years proved vicious in terms of military conflicts on the global scale.
Following the 1942 bottom, the next 24-year cycle bottom occurred in 1966 as previously discussed. This was a particularly harsh year in the Vietnam War in terms of the United States' involvement. Following the 1965 National Liberation Front attack on two American military installations, President Lyndon Johnson ordered the continuous bombing of North Vietnam.
As I observed in my book, The Stock Market Cycles, "The final 24-year cycle bottom within the current 120-year cycle will occur around late September/early October in 2014. If history repeats, the period [around] year 2014 can be expected to usher in another major war involving the U.S., possibly on the global scale."
Now consider the economic context behind North Korea's belligerence. The country can easily be described as having an "extractive" economy, in the words of Daron Acemoglu and James A. Robinson, authors of Why Nations Fail. The authors use North Korea as a prime example of an exploitative economic regime in which private property doesn't exist and the state makes all the economic decisions. North Korea doesn't trade with most of the rest of the world because of its limited production. The country is littered with broken down factories, with few of them in working order.
As with most communist nations, the elites in North Korea are sitting pretty at the expense of the average citizen. They eat at lavish banquets with multi-course meals of beef, fine wine, etc., while the rest of the country subsists on rice and scanty fare. North Korea feeds itself mainly through the charity of other nations.
Because of North Korea's limited economy and its dependence on outside sources to finance the party elites, the latest gambit by Kim Jong Un can be placed in its proper context. Kim is, in the words of the Washington Post, "playing an old and familiar game" by manufacturing a crisis atmosphere in the hope that the U.S. will eventually give him more economic aid. As many military experts have pointed out, Kim's threats would be suicidal if actually carried out. It is very unlikely the young leader possesses such a high level of insanity.
Another reason for questioning the seriousness of Kim's threats is the fact that military action has been largely discounted by the equity market. The major indices have been hovering near new all-time highs during the last couple of weeks at the time of Kim's threats. Would this be the case if the tape - which tells all - strongly believed Kim's promise to carry out a missile strike?
More importantly, the ultimate fear gauge - gold - is showing a complete lack of concern for North Korea's threat. Gold has recently broken down to a new 52-week low and recently had its worst two-day performance in 33 years. This is as far from confirming the Korean strike scenario as any leading indicator.
North Korea's threats can be ascribed to the singular frustration arising from the country's worsening economic condition. North Korea's frustration, moreover, is reflected in the declining fortunes of its neighbors and trading partners - South Korea, Russia and China. While we should question the legitimacy of those threats in the short term, the threats cannot be completely dismissed, for it could represent the early rumblings of major trouble to come in Asia in the longer term - notably the period beyond 2014.
Notice, for instance, that China's stock market has been locked up in a bear market since 2011. The long-term weekly chart for the iShares China 25 ETF (FXI) reflects a pattern of declining tops for China stocks that has been intact since the peak in late 2010. Historically, periods of social unrest - which usually lead to war - are gestated in a period of economic stagnation. Economic stagnation is normally preceded by equity market weakness. The stock market trends for China, India and South Korea suggest a period of Asian regional economic stagnation has either begun or is soon forthcoming.
The flagging equities trend in the Asia region also suggests the sociopolitical climate is ripe for revolutionary fervor of the type we saw in Egypt and some of the Arab countries a couple of years ago. The declining trend for Egypt's stock market (below) began well before the so-called "Arab Spring" revolutions commenced in 2011. Most expressions of violence, whether military or of the people, are born during periods of economic stagnation near the bottom of a major down cycle.
What the stock market indices for the major Asian countries tell us is that the region is ripe for a militant uprising of the type we're now seeing in North Korea. With the 24-year cycle of war due to bottom in late 2014 it should not surprise us to see a potential outbreak of war as we head closer to this fateful time frame.
By Clif Droke
QuantitativeExhaustion
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Cliff Droke on the Kress Cycle
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, I'd 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 I've 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 the Momentum Strategies Report in order to participate in rallies even in bear market years). Remember, just because a major yearly cycle is in the "hard down" phase doesn't necessarily mean that all stocks will be declining. As the old Wall Street saying goes, "There's 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, don't 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).