Long-term Outlook: L-shaped Recovery

Last Update: December 2010

The Slump Index remains above the -1.00% level which means that the economy not in a recession -- although the 10% unemployed may wish to take issue with that.

The 7-year MA of RPCM2 remains above $150 so growth will continue to be sluggish. The massive spike in liquidity in 2008 has come back down to Earth. I suspect now that the Fed
has taken its foot off the accelerator, the probability of a double dip recession/depression is quite high.

As for the stock market, financial bubbles always end up at the same level where they began. In other words, the S&P 500 was 460 in December 1994 when the mania
surged. Now the panic side of the bubble should eventually take the S&P back down to that level. My suspicion is that a 5-3-5 zig-zag bear market is unfolding from the October
2007 top. March 2009 ended the first zig down and the zag has carried the S&P back up to a 62% retracement in the 1230 area. My shorter term stock timing models are currently
on sell alert and simply require a daily chart reversal for a sell confirmation. That very well may spell the end of the zag and the beginning of the final zig down. The first zig took
prices down 909 points in just 17 months. A similar decline from here would get the S&P to the mid 300s by May 2012.