JR Crooks:  A “false dawn” is simply the “dawn before the dawn.” That is, a brief light that appears before daybreak. But are the early signs of a much-anticipated global recovery an indicator of more improvement to come, or simply a quick flash of light before darkness resumes?

Before I try to answer that, let me lead with this poignant quote from Ambrose Evans-Pritchard writing in The Telegraph:

“There is still too much world supply, and too little demand — the curse of the inter-war years. That at least is the (worldview) of the pessimists. If correct, we face a globalized ‘Lost Decade,’ a string of false dawns as each recovery runs into the headwinds of scarce demand, and debt leveraging grinds on.”

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And this one from Yogi Berra:

“This is like déjà vu all over again!”

Is the sun going down before it even makes it up … again?

• A false dawn at the start of 2010 rose from the Fed taking new (and bad) assets and liabilities onto its balance sheet. It corresponded with a rise in crude oil prices and a peak in payrolls. That’s when investors started to sweat — the S&P 500 eventually fell 16% over a four-and-a-half-month period.

• A false dawn at the start of 2011 rose from the Fed unleashing a $600 billion bond-buying campaign. This corresponded with a rise in crude oil prices and a peak in payrolls. That’s when investors started to sweat — the S&P 500 eventually fell 19% over just a two-month period.

• Now, in 2012, we have crude oil prices up and indications that payrolls are rolling over sharply. Despite the almost-forced optimism of recovery in the United States and a promised extended period of low interest rates, investors are beginning to sweat again. Markets are 0% inspiration and 100% perspiration. (Write that one down!)

Each false start as described above was also juiced up with Federal Reserve policy. Quantitative Easing Part 1 concluded in 2010. And then Quantitative Easing Part 2 finished up in 2011. And now Operation Twist, Ben Bernanke’s $400 billion bond-swap program, is approaching a stopping point … maybe.

Most recently, expectations for future monetary accommodation have been ratcheted down based on Fed rhetoric that’s gone from “only if the employment situation is structurally deficient” to “only if the economy needs it, but the economy is OK.”

So does that mean no more Fed QE for now? Not so fast …

Last Friday’s Non-farm Payrolls slump screams of “more quantitative easing to come.” This shouldn’t surprise us, though, because the minds behind our government and monetary system have made clear their Keynesian bias (i.e., to stimulate aggregate demand at all costs).

Personally, I don’t know how they can determine when the economy “needs” more easing. I mean, they’ve already committed themselves to inflating away value to achieve what is believed to be “growth.” The more the economy becomes dependent on monetary addiction, the harder it is to kick the habit.

Nevertheless, the Fed’s quarterly Beige Book analysis of the U.S. economy was released on Tuesday. In it, the Fed basically said everything was unchanged or slightly improved from the previous Beige Book report. They particularly noted optimistic business expectations, improving retail sales and continued slight increases in loan demand.

Not too bad. This may help them save face a bit, since they recently suggested the economy is doing all right.

Investors, however, may call their bluff.

For starters, the year-over-year improvements may have been boosted by unseasonably pleasant weather. Consider this from ZeroHedge.com:

Perhaps this shockingly simple “chart-that’s-worth-a-thousand-words” will force their hand as the correlation between regions showing extreme positivity within today’s Beige Book and the regions with the most-extreme weather disconnects is, well, extreme itself.

And then we have serious employment headwinds swirling, serving to pare back recent payrolls optimism.

Below is a chart produced by Shadow Government Statistics that shows the differences between three different employment measures. The big difference is the reporting of long-term unemployed:

Including those discouraged job-seekers who’ve been unemployed for more than a year (a Shadow Government Statistics measure), we’re seeing quite an ugly number that’s really not showing improvement.

According to the Small Business Economic Trends report from William Dunkelberg, small business optimism is on the decline after six months of improvement. More specifically, job creation plans flat-lined. Actual employment change was, however, positive but it reflects a similar peak in the beginning of 2011 (sticking with our theme of a false dawn.)

Prior to this week, a look at the U.S. stock market suggested there is little, if any, trouble on the horizon. But if recent history is anything to go on, this year’s false dawn is on the verge of darkening the investment picture considerably.

U.S. stocks have considerably outperformed counterparts in Europe and China and elsewhere. But that was based very much on recovery expectations. It may be time for some catch-up.

A look at the S&P 500 and a potential set-up:

Naturally, support came into play at the 50-day moving average — the first level of key support in an established uptrend, as far as I’m concerned. We may see an attempted test of the highs, but my money is on a three-wave downside move to take us through the second quarter.

A similar three-wave pattern played out at the start of 2011. Will it be déjà vu all over again?

What’s shaping up may not prove to be the big breakdown — that may somehow be postponed until the second half. But that doesn’t mean the current set-up for a near-term decline is not playable.

In fact, there are several simple ways to play proactively for a downturn in U.S. stocks. Simply buying an inverse ETF like the ProShares UltraShort S&P 500 (NYSEARCA:SDS) means you don’t have to worry about selling short. Or you can buy put options on an ETF like the SPDR S&P 500 ETF (NYSEARCA:SPY) to avoid selling short while also capturing a significant amount of leverage (which tends to be appealing when targeting short-term moves).

Related: S&P 500 Index (INDEXSP:.INX), Direxion Daily Small Cap Bear 3X Shares (NYSEARCA:TZA), ProShares UltraPro Short S&P 500 (NYSEARCA:SPXU), ProShares Short S&P500 (NYSEARCA:SH).

Best,

Written By JR Crooks From Money And Markets

Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss  along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and  Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff  do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance  returns cited are derived from our best estimates but must be considered  hypothetical in as much as we do not track the actual prices investors  pay or receive. Regular contributors and staff include Andrea Baumwald,  John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen  Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker,  Leslie Underwood and Michelle Zausnig.

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