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) to AIG ( AIG) to GE to Berskhire Hathaway ( BRK.A), 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.

Barry Ritholtz is chief market strategist for Maxim Group, where his research and market analysis are used by the firm's portfolio managers and clients in the U.S., Europe and Japan. He also publishes The Big Picture, his macro perspectives on the economy and geopolitics, entertainment and technology industries, and is a member of the board of directors of Burst.com, a streaming media software company. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Ritholtz appreciates your feedback and invites you to send it to barry.ritholtz@thestreet.com.

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