Stock market cycles clif droke

Throughout most of , economists were convinced that the threat of deflation had been successfully bypassed thanks to Fed intervention. Indeed, many celebrated economic forecasters have been loudly cheering the mostly solid-looking economic data throughout most of this year.

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The Kress year cycle of inflation and deflation, known as the Super Economic Cycle, was scheduled to bottom this October. Put another way, the incessant meddling and intervention by the U. Federal Reserve in recent years may have staved off the deflationary impact of the final years of the year cycle after the credit crash.

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There have definitely been premonitions of such a deflationary backlash in just the last few weeks. One of the most conspicuous of proofs that deflationary currents are at play is the drastic decline in petroleum prices. Consider that gasoline prices have been plunging and are now at their lowest level in almost four years. Since oil and gas prices are among the most important variables in determining prices of all sorts of goods, it stands to reason that as oil prices fall it will eventually lower prices on the retail level.

It has long been the observation of top cycle analysts that a failure of the oil price to decline in a meaningful fashion before long-term deflation reaches its nadir would do irreparable damage to the economy once the next long-term inflation cycle kicks off. If retails prices enter a renewed inflation cycle at a high level, the return of cyclical inflationary pressures down the line will only serve to strain the economy in the form of higher living costs.

Seen from this perspective, the plunge in oil and gas prices is a blessing in disguise. Rising Dollar Key Factor in Energy Sector Decline ]. Prices for a large basket of commodities have continued to slide in recent months. Most losses to commodity prices have come since then, which corresponds to the final descent of the Kress cycle.

Falling demand and prices for commodities has hurt countries which rely heavily on industrial exports, including China and many European countries. Manufacturing orders for Germany dropped 5.

In the wake of these recent developments, economists have modified their forecasts and are predicting deflation in the euro zone as EU monetary policy remains tight. ECB president Mario Draghi has made attempts at raising prices by hinting at a U. Fed-style QE initiative, but so far his plans have been stymied as policy makers in Germany refuse to endorse it.

For now the European Union remains mired in an economic malaise with no stimulus effort on the immediate horizon. The first possibility is that of a Kress cycle compression. Simply stated, this scenario would mean that most of the deflationary damage has already been done and that the short-term will only witness some residual damage, followed by gradual recovery in equity prices as well as oil prices.

The next possibility is that of a Kress cycle inversion.

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Kress to describe what happens on rare occasions when a major cycle bottom essentially transforms into a top, leading to an extended decline beyond the time frame of the original cycle. An example of this was seen in the final stage of the credit crash of late While the worst of the damage was seen in the third and fourth quarters of when the 6-year Kress cycle was bottoming, there was additional spillover damage into the first quarter of before stock and commodity prices put in their final lows.

The temporary failure of the 6-year cycle bottom to reverse the downside momentum in late was due to a lack of confidence among market participants. It took reassurance from the Fed and from Washington in the form of massive stimulus before investors felt confident enough to commit to buying once again.

Currently, investors are perhaps waiting for the U. PBoC Joins Other Major Central Banks With Unconventional Monetary Policy Action ]. The market may also be waiting to see if the Fed reverses course on its stated intention of raising interest rates sometime next year and instead introduces more stimulus measures if the deflationary pressure continues. If the Kress cycle inversion scenario is realized and prices continue to slide, the Fed will be confronted with the possibility that emergency stimulus measures are needed to reverse the damage and prevent full-blown deflation.

Clif Droke is a recognized authority on moving averages and internal momentum, two valuable tools which have enabled him to call most major stock market turning points from through the present.

He is the editor of the Momentum Strategies Report newsletter, published three times a week since CLICK HERE to subscribe to the free weekly Best of Financial Sense Newsletter. Commodities Economy Energy Global Markets Metals Storm Watch. PBoC Joins Other Major Central Banks With Unconventional Monetary Policy Action ] The market may also be waiting to see if the Fed reverses course on its stated intention of raising interest rates sometime next year and instead introduces more stimulus measures if the deflationary pressure continues.

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