The Power of the 10-Year Cycle
Clif Droke, August 24th, 2009
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Here we are again approaching another 10-year cycle peak. The last such peak was in 1999 while the most recent 10-year cycle bottom was in 2004. We wrote extensively on both episodes at the time and the 10-year cycle is one of our favorites. It's what I like to call the "slam dunk" cycle since among all the yearly Kress cycles, the 10-year cycle at its peak and bottom phase can almost always be used for profitable trading/investing almost by itself.
It will be sad to wave goodbye to our friend, the 10-year cycle, in a few weeks. After the 10-year cycle peaks it will be up to the 6-year cycle to provide any longer-term support between now and 2012 when the final "hard down" phase of the Kress 120-year Grand Super Cycle begins. In this commentary we'll focus on the remaining portion of the 10-year cycle and how it can still be used to good effect by investors between now and year-end. That the broad market has benefited from the peaking 10-year cycle is obvious and needs no elucidation. Clarification is needed, however, within the scope of the Kress cycles to tell us what we can expect from the market from now until year's end based on cyclical comparisons.
The year 1979 is the closest parallel to 2009. The 6-year cycle bottomed in 1978 which meant the stock market had the benefit of a newly rising 6-year cycle in 1979. The 10-year cycle peaked around the early part of October in '79. This becomes apparent in the daily chart of the S&P 500 Index (SPX) shown below.
The 10-year cycle peaking in October '79 triggered a sharp decline that saw the SPX retrace much of its gains over the prior four months. Most of this sharp decline took place within the short space of three weeks, which is typical of a major cycle peaking. Following the October mini-crash, the S&P rallied in November and December and almost recovered its losses from October and closed just under the high for the year 1979. The NASDAQ Composite Index actually had a much stronger recovery following the 10-year cycle peak in October '79 as shown here.
By comparison, the most recent 6-year cycle bottomed last year, which means the newly formed 6-year cycle is up in 2009. This ascending 6-year cycle has combined with the forceful momentum of the peaking 10-year cycle to create one of the strongest recovery rallies in decades in percentage terms.
