Repositioning Before the Coming Selloff

By then, there should be enough disgusted investors that the markets can put in a solid, extremely oversold low. That sets up the markets to claw their way back to near break-even by year's end. By December, we should more or less be back to where we are today. Depending upon the circumstances at that time, that may be a particularly advantageous entry point for shorting the markets.

Proving or Disproving the Thesis

Every time I make a forecast or market call, I start with the presumption that I will be wrong. Then, I begin looking for signs that will validate or repudiate the call. So what would prove this market forecast call false? There are several ways that can happen:

• First, the markets can sell off faster, and get more deeply oversold at this point than I expect. That would set up a longer, stronger rally then I am presently contemplating.

• Second, the markets could break out to the upside, rallying over their March 7 highs on strong volume. Any breakout over the March highs makes this call absolutely wrong. I doubt we would even get a "head-fake breakout." A closing price over the March highs would force me to redeploy capital.

• Lastly, we could see a series of improving economic data showing inflation free growth. I don't mean the misleading headlines of unemployment or home sales; I mean honest-to-goodness nonmanipulated growth.

Barring these factors, I expect the market to make a painful descent into the summer and as mentioned previously, I expect the year to finish flat to negative. Consistent with my bear sandwich thesis , a second-half rally will set up an opportunity to get aggressively short into 2006.

Lastly, while everyone suddenly discovered last week that (horror!) producer and consumer prices have been going up, I am becoming increasingly concerned about the macro impact of derivatives. From Fannie Mae (FNM Quote - Cramer on FNM - Stock Picks) to AIG (AIG Quote - Cramer on AIG - Stock Picks) to GE to Berskhire Hathaway(BRK.A Quote - Cramer on BRK.A - Stock Picks), all too many U.S. companies have turned into heavily camouflaged, leveraged hedge funds. Skipping over the esoteric details, I suspect this too, will end badly.

This is an intermediate top call. Take advantage of higher prices, as I expect this rally will run out of steam in early April at the latest. The market risk is a selloff into the summer. Position yourself appropriately this week.

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