One Possible Path

By Tim Knight

Even though I’m kind of in the business of trying to predict the future, the one topic that seems to get me face-slapped most easily here on Slope is when I try to do just that: in other words, those times when I try to paint with a broad brush what could be coming in the future. In spite of it, I’m going to do it anyway, and offer up one possible scenario for the months ahead in our world and, thus, equity markets. As is so often said here, “anything could happen”, but just for the hell of it, let’s work with this possible path forward:

(1) The Top Is In: OK, OK, stop yelling. Remember, we’re just playing with one potential scenario. Let’s start off with the assumption that my much-maligned Fibonacci target of 2486.95 was successfully reached last month (intraday high: 2484.04, 99.99%+ of the target price) and that the insane stuff you are reading from commentators such as the bull market will last “forever” and (from Yellen) how we’ll never see another financial crisis in our lifetimes is the very stuff which precedes gargantuan turning points.

TinFoil(2) Something Happens – hey, how about that? What I mean here is that we get some kind of shock event, be it a missile from North Korea, a conflagration with China, a terrorist attack – – something – – which grabs the bull market by the throat and pulls it underwater. Maybe a 1987-style crash, maybe not – but definitely enough to get everyone’s attention. I’m not talking about a 2008 level collapse – – but a drop large enough to freak out the Fed and give them political cover for new QE.

(3) Robust Recovery – thanks to D.C. saving the day, the market rallies mightily, restoring confidence to everyone that the central bankers have their back and that, true to the sentiments of every prognosticator on the planet except for me, it is the end of history and there will never be another bear market again. Ever.

(4) The Bear Returns – after the market tries, but fails, to reach another lifetime high, things start to turn south again, and over time, people start to worry. How is this happening? Why is the market falling? Why are mommy and daddy allowing this to happen? Reality, at long, long last, is finally back, and back with a furious vengeance.

Well, it’s just a thought.

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