Where are we headed long term?

I am going to change it up a bit today and present some more longer term numbers. Most of my posts have been short term based and focused on the immediate nature of the market. As some of you remember I had posted a fairly negative message last week about the overall outlook so I wanted to elaborate a bit more on direction and challenges we see in the current market place and conditions.

The First Big Crash – ok let’s address the month of September and October. As some of you may remember back in July I had indicated the lows of the year being formed in October – we have a few days left and I think our current down cycle will find its bottom at the 764 level, the level we adjusted down to back in 2001 at the end of the dot com boom. We have been holding up fairly well over the last few days but you can sense the market sentiment not accepting the 839 as the bottom. Our bottom is imminent and will develop over the next few days and I am pretty confident we will find it at the 764 range where we will trade very very short. From here on out the market will rally in a dramatic move on the short term and stabilize in an uptrend that should find the top around the 1040 or the 1100 range – it is possible to hit the 1180 but that I need to determine once we get closer to the range based on momentum. This cycle should find its end towards the end of the year and may reach into January. The overall sentiment of the market, investors and consumers are based on the buy and hold still. In September and October a large amount of the down volume has been caused by the redemptions and de-leveraging in hedge funds. In a down trend environment the first positions to get hit are the higher risk ones and those have come to an end.

The next Big (orderly) Crash – the next big event we have to deal with is the redemptions out of mutual funds and 401k’s. I see huge risks with the average investor being sold on the idea that the bottom is in and we will continue on the upside. Seeing the DOW at the 10K levels again will bring back huge amounts of confidence, investors are more comfortable now that they have recovered some of their losses and greed will step in again with low risk investments being moved into more risky ventures to get in on those “undervalued companies” that are begging to be bought and bring huge returns back how we had them in 2007. After our top around the turn of the year our downtrend will continue in an orderly fashion, nothing like we had seen in the past 2 months. Sense, with a hint of fear, will slowly set in again when we will trade back towards the 700-800 range. Here is where I believe we will start to see a huge change in the market place with more redemptions coming from Mutual funds based on 401K liquidations or moves into bonds and other stable investments. This will be a long process and by the time we are done we will have our 400 mark on the S&P towards 2009/2010. You may call me crazy and yes I agree I am worst case scenario kind of guy but I rather prepare for this event and be called out in 3 years about how wrong I was then to blindly follow a path that has risk and loss written all over it.