A Look at the 4-Year Presidential Cycle

By: Clif Droke | Wed, Apr 2, 2014
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For all the bullish 2014 expectations among Wall Street analysts, few if any consider the impact of the long-term cycles. After all, it's in late 2014 when several major long-term yearly cycles are scheduled to bottom in unison, from the widely followed 4-year cycle to the well-known 10-year cycle and on to the even bigger 40-year and 60-year cycles. Each of these cycles tends to stamp its unique presence on the stock market when they bottom individually. How much more then can we expect to feel their presence when they're bottoming contiguously?

Putting aside the bigger implication of the long-term inflation/deflation cycle of 60 years, let's examine just the 10-year cycle. This is one of the components of the long-term "super" cycle. As long-time readers of this report will recall, the last time the 10-year cycle bottomed was in 2004. This cycle always bottoms in the "four" year of each decade.

When it's bottoming by itself the 4-year cycle doesn't always create bear market conditions, but it does tend to increase stock market volatility - especially as the bottom draws closer (late September/early October). You'll recall that 2004 was essentially a lateral or sideways trading range for the stock market with stocks making no net progress that year. While the year 2014 is still young, it's worth noting that already the S&P 500 Index (SPX) has made no net progress to date while the Dow 30 Index is below its 2013 high. It's too early of course to establish any intermediate-term patterns, but the makings of a trading range are already evident.

Even if you're not a proponent of Kress cycle theory, consider that we're in the second year of the 4-year presidential cycle. The second year following a U.S. presidential election year is almost always marked by increased market volatility. Not uncommonly the second year of a 4-year presidential cycle witnesses a bear market. Let's examine the "second year curse" of the past few presidential cycles for some examples:

The above overview of the presidential cycle reveals some common denominators. The first one is that years in which the 4-year cycle bottomed along with a bigger cycles, such as the 10-year or 12-year cycle, saw unusual periods of market volatility and selling pressure, particularly in the second half of the year. The second is that volatility tended to increase during the second year of a president's second term. Both of these factors apply to 2014.

Based on our survey of the last 30+ years we can conclude that the second year of the sitting president's term is typically a year when bad things happen. Why this should be is self-evident; a presidential administration has a vested interest in implementing policies designed at "juicing" the economy in the first year of the term in order to consolidate political support. The second year of the 4-year term is when most tax and regulatory increases are implemented. It's assumed by presidents that they will be able to again juice the economy in the third and fourth years, and that voters will likely forget the bad times of the second year by the time the next election rolls around. Incidentally, the second year of a president's term always coincides with the down phase of the 4-year Kress cycle.

The reason for taking pains to review the 4-year presidential cycle in tonight's report is because there are strong reasons for believing it will come into play at some point this year. Maybe not in the next couple of months, but certainly by the summer we should see signs of increasing market volatility and accelerating selling pressure, especially as we head closer to the final bottom of the 60-year deflationary cycle this fall. If China and/or other emerging market countries are experiencing turmoil (as I expect) it will likely only serve to exacerbate the volatility.

Already we've seen a brief preview of what the next global market crisis could look like. The problems have originated in China and Russia with other countries (e.g. Brazil, Chile, Turkey) playing supporting roles. This is very similar to what happened in 1998 with the financial crisis that rolled across the globe beginning with Asia and extending to South America, Russia and finally hitting the U.S. like a tsunami. Few market analysts in 1998 (a super boom year) believed the "Asian contagion" would infect U.S. markets, but they were dead wrong. It happened very quickly in '98 with most of the damage occurring in July through September - the final "hard down" phase of the 4-year and 8-year cycles.

Again, this summer the 4-year, 8-year, 10-year, 12-year, etc. cycles through the 60-year cycle will also be cascading into their final bottoms around late September/early October. It would be surprising indeed if the financial market somehow emerged unscathed by this crescendo, especially given the fragile state of the global economy.

 


Kress Cycles

Cycle analysis is essential to successful long-term financial planning. While stock selection begins with fundamental analysis and technical analysis is crucial for short-term market timing, cycles provide the context for the market's intermediate- and longer-term trends.

While cycles are important, having the right set of cycles is absolutely critical to an investor's success. They can make all the difference between a winning year and a losing one. One of the best cycle methods for capturing stock market turning points is the set of weekly and yearly rhythms known as the Kress cycles. This series of weekly cycles has been used with excellent long-term results for over 20 years after having been perfected by the late Samuel J. Kress.

In my latest book "Kress Cycles," the third and final installment in the series, I explain the weekly cycles which are paramount to understanding Kress cycle methodology. Never before have the weekly cycles been revealed which Mr. Kress himself used to great effect in trading the SPX and OEX. If you have ever wanted to learn the Kress cycles in their entirety, now is your chance. The book is now available for sale at:

http://www.clifdroke.com/books/kresscycles.html

Order today to receive your autographed copy along with a free booklet on the best strategies for momentum trading. Also receive a FREE 1-month trial subscription to the Momentum Strategies Report newsletter.

Clif Droke is a recognized authority on Kress cycles and internal momentum, two valuable tools which have enabled him to call most major stock market turning points from 1997 through the present. He is the editor of the Momentum Strategies Report newsletter, published three times a week since 1997. He has also authored numerous top-selling books, including his most recent one, "Kress Cycles." For more information visit www.clifdroke.com

 


 

Clif Droke

Author: Clif Droke

Clif Droke
ClifDroke.com

Clif Droke is the editor of the two 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 "The Stock Market Cycles." For more information visit www.clifdroke.com

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