"To the Cliff!"

Mike Turner |

300 economyThere is a scene in the movie, "300", where the Spartan king, Leonidas is in an epic battle and commands his small army to push forward, forcing the enemy to back up toward a cliff. In this scene, he roars, "To the cliff!!" and his small but fiercely determined warriors, with their shields held in front of them, begin to step in unison toward the struggling hoard on the edge of the cliff. With each step forward by the Spartans, the opposing forces inch backward. The fighters in the back, who are closest to the edge of the cliff are being pushed backward by those in front of them under the advancement of the Spartans. Struggle as they might to get their own forces to stop pushing them backwards, they cannot ... and are left with no choice but to fall to their deaths. I can't seem to get the image out of my mind that maybe we are slowly but surely being pushed closer and closer to the edge of an economic precipice. I leave it to your fertile imagination to make the appropriate metaphorical assumptions of who the Spartans are and who the opposing forces are in today's economic and political environment. I know I have my 'sides' identified.

Below is the current time-cycle forecast. The trend is decidedly Bearish but is it too Bearish or not Bearish enough. In reality, it is what it is... merely one more indicator of a likely direction of the stock market. Keep in mind that the cycles used to produce this forecast are at least four years old, with the oldest source data being twelve years old. This forecast does not know who the current President is nor the actions of the Fed for the past two years... nor anything, for that matter, that has happened in the past 4 years. These forecasts are not based on current events. There are plenty of technical analysis algorithms and charts that are based on current events. I am struck by the often (not always, for sure) uncanny accuracy of these forecasts. More on this in my SuperCycle update, below...

And, let's not lose sight of the fact that in the realm of time-cycle analysis, amplitude (how high or how low) is the least predictive of the 3 components of a time-cycle forecast, which are: Turn Date (date of tops and bottoms), Trend Direction, and Amplitude (degree of movement higher or lower in the future). With this in mind, the forecast 11% drop between now and mid-November could be a lot worse or it could be quite a bit better and still be an accurate forecast of timing and trend direction.

It is far more plausible, I submit, that the above forecast is, indeed, too optimistic. This week, we should get 'some' indication of whether we are getting pushed closer to the edge of the cliff or are managing to fight and claw our way back onto safer ground. On Wednesday, we could learn if the Constitutional Court of Germany will rule on whether bail-outs are constitutional or not. If not, the stability of the EU could be substantially shaken if not destroyed. If the European Union stumbles and looks to be falling apart, the global ramifications for economic stability could, indeed, look as if it is falling off a cliff.

Then, on Thursday night, President Obama presents his economic plan for the future. This is definitely one of those hope-for-the-best-but-plan-for-the-worst kinds of speeches. Hopefully, we will see a plan that will permit us to begin moving away from the edge of the cliff and on firmer footing for the future.

The deep concern that I have is there may not be a way out of an impending economic meltdown without some significant pain. Sure, the Fed could print another two trillion dollars and dump that money into the market and that would, indeed, push many stocks higher. That would get gold over the $2k per ounce price in a hurry. But, it doesn't solve the problem. Even defining the problem is difficult. We all have an opinion of what the problem is. I think it is too much spending and too much government with a too imbalanced taxation policy. But, cutting spending and downsizing government is virtually impossible to do in this tenuous economic climate without pushing the economy into another severe recession or worse. As for overhauling the tax code and implementing a flat tax where loopholes are closed, plus instituting a national sales tax... I am afraid that will never get any traction in the current political climate in Washington.

But, maybe I am being way too pessimistic... Hopefully, we are not in an economic death spiral. Hopefully, we are just bumping along the bottom and will soon be back on track for strong economic growth and recovery. Hope springs eternal, but in the meantime...

Here is What I Plan to Do... This Week.

From a 10,000 foot level, over 75% of the 50 time-cycle forecast charts are giving strong to very strong Bear signals. We may not get this much of a lopsidedly Bearish (or Bullish) forecast more than once or twice (if that) in a year or two. On top of this number of Bearish signals, over half of the forecasts have SuperCycles in play this week. This high of a percentage is very unusual.

As such, I plan to go significantly short this week.

My CycleProphet portfolio is 100% cash at this writing. We may get 30% or more short this week via inverse ETFs and, maybe, some put buying.

Have a great week in the market.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
TER Teradyne Inc. 21.29 -0.27 -1.25 1,034,689

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