I have long been an admirer of the stock market cycle analysis of one Samuel J. “Bud” Kress, proprietor of SJK Capital and publisher of the cycle-based SineScope advisory.

Kress has been in the equity market business all his adult life, either on Wall Street or in more recent years as an independent analyst/trader. If the Kress name seems familiar to you it’s probably because you remember the chain of S.H. Kress & Co. “five and dime” stores that once dotted the country. The stores founder, Samuel H. Kress, was Bud’s grandfather.

During my 10 year acquaintance with Mr. Kress, I’ve been privileged to learn of his discovery of a remarkable series of weekly and yearly cycles. These cycles (Kress Cycles as I’ve taken to calling them) have an amazing correlation to each other and are based on the Fibonacci sequence. More importantly, they have accurately identified the major turning points in the financial markets and the economy over the last several years. The Kress Cycles are predicting a major period of change ahead for the U.S. stock market and economy, particularly between the years 2010-2014.

Using his cycle system, Mr. Kress correctly identified the 1999/2000 stock market top and also the 2002/2003 end to the bear market. More recently, Kress identified the stock market top in 2007 and is looking for the start of a new cyclical bull market to begin soon. Kress recently published a “Special Edition” to his SineScope publication, the fifth one of the past 10 years. Each previous Special Edition has been eye-opening in its predictions for equities and thus far has proven to be accurate. The latest Special Edition is perhaps his most important one yet, and with that in mind I decided to pursue an interview with the author. Kress was kind enough recently grant me an interview concerning his cycle work and investment/economic outlook for the U.S. in the foreseeable future. He also shared his longer-term outlook for gold and commodities.

CD: How did you get your start in the business and what brokerage firms did you work for?

SK: I started in the business right after graduating from college in the mid 1960s. I joined Smith, Barney & Co. which at that time was the premier fundamental research and investment banking and institutional research firm. More innovative firms were becoming more competitive with the advent of the smaller “boutique” firms. Prior to 1970, I joined Faulkner, Hawkins & Sullivan as an institutional rep. This time I shared the position with Donaldson, Lufkin & Jenrette at the premier “special situations” firms. I later became available to institutional buyers relegated as an institutional rep to nothing more than a link in the party line, so I decided to enter the retail (individual) side of the business and joined Kidder, Peabody & Co. I found this disconcerting for, in actuality, a rep was paid for the volume of business done rather than for the amount of money made for a customer.

CD: In the introduction to your latest publication, you make reference to the superiority of market analysis compared to fundamental analysis. At what point in your career did you discover the technical approach to the stock market worked best?

SK: My gut told me that fundamental analysis was a reactionary, loss prone approach to value whereas sound market analysis is anticipatory and can provide a value added for the investor or trader. I became associated with an individual who did market analysis. This sparked my interest in doing my own work. In the earlier 1980s, I left the brokerage industry and joined a computer leasing firm wholesaling tax advantaged partnerships. While at the firm, I began developing a specialized methodology to market analysis. With the change in tax regulation, I left the leasing company in the early 1990s and became involved exclusively to developing SineScope [Kress’s proprietary cycle method for stock market trading]. After years of trial and error, I finally achieved the desired level of competitive excellence last year.

CD: What about p/e ratios? Many fundamental analysts swear by them. Do you attach any importance to them?

SK: Earnings are a lagging indicator. Prices are a leading indicator of earnings reversal, consequently they can have predictive value. The whole key is to identify price reversals using the Fibonacci-based mathematical identifications of the cycles. Mathematics being the most precise language allows the market to convey what it’s doing.

Interview by Clif Droke

This is an excerpt from Feb 2009 issue of Trader's Journal. To view the complete article, please click here.