Best of the Week
Most Popular
1.RED ALERT: Paris Terror Attacks - What to Expect Next - STRATFOR
2.Paris Terror Attacks, Death Pangs of a Dying Religion, and Impact on BrExit EU Referendum - Nadeem_Walayat
3.Paris Terror Attacks, Islamic State Attempting to Spark Civil War in France - Nadeem_Walayat
4.Three Shocking Charts That Prove Gold Price Rally Is Coming - Sean Brodrick
5.Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - Mike_Shedlock
6.Africa Population Explosion - Why Europe's Migrant Crisis is Going to Get A Lot Worse - Video - Nadeem_Walayat
7.Gold Mining Stocks May Be The Buy Of The Century - Jeff_Berwick
8.Grandmaster Putin Beats Uncle Sam at His Own Game - Mike_Whitney
9.BRICS? No, CRISIS - Raymond_Matison
10.UK Housing Market Affordability, House Prices Momentum and Trend Forecast - Nadeem_Walayat
Last 5 days
Sheffield, Yorkshire and Humberside House Prices Forecast 2016-2018 - 25th Nov 15
Investors Watch Out For The Auto Industry… - 24th Nov 15
BEA Revises 3rd Quarter 2015 US GDP Economic Growth Upward to 2.07% - 24th Nov 15
Stock Market Supports Are Being Broken - 24th Nov 15
Is Gold Price on the Verge of a Breakout? - 24th Nov 15
Fed’s Tarullo: U.S. Interest Rates Liftoff Should Wait for Signs of Inflation - 24th Nov 15
Silver Price, COT, US Dollar Updates and More - 24th Nov 15
UK Regional House Prices Analysis - Video - 23rd Nov 15
Crude Oil Swinging For The Fences - A 20 to 1 Option Play - 23rd Nov 15
US Dollar, CRB, Oil, Gas, Copper and Gold - The Chartology of Deflation - 23rd Nov 15
UK Regional House Prices, Cheapest and Most Expensive Property Markets - 23rd Nov 15
Stock Market Rally Losing Momentum? - 23rd Nov 15
Will Gold Price Drop Below $1000 Soon? - 23rd Nov 15
Gold and Silver Sector Big Green Light and Low Risk Entry Setup... - 23rd Nov 15
Limits to Economic Growth - Challenge and Choices - 22nd Nov 15
Long Dollar Trade and Current Copper Price Below Cost of Production - 22nd Nov 15
UK Housing Market House Prices Affordability Crisis - Video - 21st Nov 15
The Fed Has Set the Stage for a Stock Market Crash - 21st Nov 15
Stock Market Primary V Wave Continues - 21st Nov 15
Gold And Silver - Value Of Knowing The Trend - 21st Nov 15
UK Footsie Bulls Set To Foot The Bill - 21st Nov 15
UK Housing Market Affordability, House Prices Momentum and Trend Forecast - 21st Nov 15
GDX Gold Miners’ Strong Q3 Results - 20th Nov 15
End of Schengen, Stock Market’s Technical Strength Grows - 20th Nov 15
Justice for All and The Curious Case of Zambia - 20th Nov 15
Paris, Sharm el-Sheikh, and the Resurrection of Old Europe - 20th Nov 15
Silver Prices and The Management of Perception - 20th Nov 15
Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - 20th Nov 15
Waiting for Goldot Again - 20th Nov 15
Michael Curran Goes Down-Market Shopping for Gold Stock Winners - 20th Nov 15
Why Isn’t This Incredibly Bearish Bond Market Development Making the News? - 19th Nov 15
SPX Appears to have Stopped its Rally - 19th Nov 15
The Great Fall Of China Started At Least 4 Years Ago - 19th Nov 15
Using Elliott Waves: As Simple As A-B-C - 19th Nov 15
Has Deflation Been Ddefeated? - 19th Nov 15
Dow Jones Stock Market Index is Not Going to Crash - 19th Nov 15

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

Reasons to Get Excited About Japanese Stocks

Stock Market Melt-up 2014 - Is It 1929 All Over Again?

Stock-Markets / Stock Markets 2014 Dec 16, 2013 - 06:08 PM GMT

By: Clif_Droke


A growing number of market technicians, some of them highly respected, are forecasting a sharp correction in the January-February time frame. In light of a number of recent inquiries I've had regarding this possibility, let's examine this topic.

Tom DeMark is one of Wall Street's most esteemed technical analysts. He recently uncovered an analog between the current stock market and the run-up to the 1929 top. Tom McClellan published a chart comparing the two markets in a recent article. The theory behind price pattern analogs is that "similar market conditions can produce similar patterns" as McClellan put it.

One problem with comparing stock market patterns from different periods is that the underlying conditions behind the patterns are often dissimilar. For instance, the run-up to the 1929 high was fueled by widespread speculation from the general public. Today the public is a virtual non-participant in the market's run-up to new highs. Also, as McClellan himself points out, the Federal Reserve consistently raised the benchmark interest rate several times leading up to the 1929 crash. Today, of course, the Fed funds rate is hovering near zero percent.

Effective Federal Funds Rate

Technicians like DeMark and McClellan who foresee a market top in mid-January base their prediction not just on various technical disciplines, but on a more mundane set of reasons. For instance, next month is when the current congressional agreement on the debt ceiling comes up again for discussion, which in turn could cause investors to reassess their enthusiasm. Concerns over health insurance policies and the implementation of the Affordable Care Act could be another investor concern around mid-January. This is what the technicians who argue in favor of a January top believe at any rate.

Another consideration for the projected mid-January top is found in the following words of McClellan: "The Fed is not likely to yank away the punchbowl at its Dec. 17-18, 2013 meeting, just a week before Christmas, but the Jan. 28-29, 2014 meeting is a greater possibility for finding out that the markets may have to start to quit the QE addiction. And the FOMC's March 18-19 meeting fits right about where the Black Thursday crash of 1929 fits into this analog."

My assessment of the mid-January top scenario is decidedly different from that of the above mentioned technicians. There are several key short- and intermediate-term cycle peaks scheduled for January, culminating with a Feb. 21 cycle cluster on the Kress cycle calendar. This makes it possible a sharp correction beginning in January and lasting into later February, but without a specific catalyst a crash is exceedingly hard to predict.

Certainly the market's internal momentum is deteriorating, but that alone isn't sufficient to expect a major crash. In order to have a sharp sell-off like the one DeMark, McClellan, et al predict we'd likely need to see a major worry - probably news-related - take center stage early next year.

Another consideration for a significant market decline in 2014 is the "melt-up" scenario discussed by economist Ed Yardeni and others. Should the stock market continue its advance unabated into Q1 2014, conditions may well be ripe for a major top by the end of the next quarter. The weekly configuration of Kress cycles would support this, not to mention the coming final "hard down" phase of the longer-term yearly cycles scheduled to bottom in late 2014.

SPX Weekly

The only other ingredient necessary is greater public participation in the stock market. Michael Sincere of touched on this in a recent column. He asks where are the "intoxicated investors, a buying frenzy, over-the-top speculation, and a get-rich-quick mentality?" He rightly points out that these are necessary accompaniments to a market bubble.

A continued rally to new highs, however, will likely solve this "problem" by forcing sidelined investors into becoming market participants for fear of missing the proverbial "only game in town." Thus as we're about to enter 2014 the stage may be set for a final melt-up stage to set up a crash later in the year.

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:

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.

By Clif Droke

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

Clif Droke Archive

© 2005-2015 - 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

Biggest Debt Bomb in History