Long-term Outlook: L-shaped Recovery

Last Update: August 2009

The Slump Index moved above the -1.00% level in June meaning that the economy is no longer in recession although unemployment, a lagging indicator, continues to rise.

However, the 7-year MA of RPCM2 remains above $150 so growth will be sluggish. The massive spike in liquidity in recent months is unsustainable and when the Fed takes
its foot off the accelerator, the probability of a double dip recession is quite high.

As far as the stock market goes, 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. A four-year cycle bottom comes due in 2010 and has an 88 percent probability
of showing up within six months of July of that year. Odds favor that cycle low to be the end of the 5-3-5 zig-zag bear market in the NASDAQ and the 3-3-5 flat bear market in
the S&P 500 that began in year 2000. At the target low the following long-term stock market indicator should push into the "stocks cheap" zone of the declining channel and present
an historic buying opportunity.