A lot of people want to know if what we’re seeing is a sucker’s rally or the real thing. Figuring it out is actually very simple. A true market rally isn’t built on government intervention and positive spin. It’s built on solid economic growth and solid earnings.

Think of it this way – if the foundation of your house was faulty… or if the wood beams holding your home up were weakened… it’s only a matter of time before your house finally crumbles.

The economy and the stock market are the same way.

Right now, the only thing that has changed is evidence that the economy isn’t shrinking as fast. I reckon that means the economy is still shrinking.

Now let me admit that before I jumped to that conclusion, I had to double check my logic.

So I consulted with my five year old niece, Amanda. I asked her “Amanda, if something is shrinking fast and then starts shrinking slower, does that mean it’s still shrinking?”

And she said “yeah you big dummy!”

So if the economy hasn’t even bottomed yet, odds are the stock market will continue moving down. Luckily, right now you’re presented with a golden opportunity.

This is a weekly chart of the Dow Jones Industrial Average. What I want to draw your attention to are those three blue boxes.

What they show is that when the Slow Stochastic and OBV are both above 80, we see stock prices move down over the next 7-12 weeks.

The first time this happened was from October 2007 to November 2007. The Dow dropped 8.5% in 7 weeks. The second time was in April of 2008 to July of 2008. The Dow dropped 15.7% in 11 weeks.

Right now, both the Slow Stochastic and OBV are above 80. The probability of stocks dropping between 8.5% – 15.7% is pretty high.

My prediction is that we’ll see the Dow Jones drop to 6,500 and retest the March lows. That’s a 17% drop.

If the Dow ends the week in the positive, all bets are off.