SP500 Levels: Don't Be Shorting Obama Here!

Everything in markets has a price. Just to recap where my head has been at on pricing Obama into expectations, here’s what I wrote before I sold down our Asset Allocation to US Equities to 9%:
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Fri 1/2/2009 2:46 PM

“At 928, the SP500 is riding the wave of her intraday highs here…. and this is a great spot to be making sales. We’d been making the call to buy them for over a month now, so with the SP500 +6.5% in less than 3 trading days, this is your payday. Not making sales anywhere north of the 922 line would constitute getting “piggy”.

Today, is Thursday Friday January the 15th, and that Mr. Market has issued us a -12% drop in the SP500’s price from the date of that note (“SP500 Levels: Making Sales”, www.researchedgellc.com, 1/2/09). As a result, I have built my Asset Allocation back up to 25% in US Equities, which is close to its highest level in well over a year. Like all Americans, I love a sale – why some money managers love to buy everything on sale other than stocks is entirely their issue to deal with, not mine.

As prices change, so do expectations. The only factor to solve for other than price and expectations is duration. Now that we are t-minus two trading days until Obama rebrands American credibility and attempts to rebuild the trust that we all believe she deserves, we have ourselves an opportunity to earn a positive return on the long side again.

Anywhere under the 836 SP500 level that I issued in this morning’s Early Look = BUY. If you want to get all crazy and call the end of the world like your average run of the mill member of the Groupthink society, go right ahead. I have outlined the SP500 levels associated with both a 2 and 3 standard deviation move versus my expectations in the chart below – those are very hard circumstances for me to see, but because they are less probable certainly doesn’t mean they cease to exist.

A 2 standard deviation immediate term meltdown in the SP500 gets me SP500 813, and a 3 standard deviation move takes me to 776. While 776 would still confirm the intermediate bullish “Trend” of the US stock market making higher lows (since the November bottom), I don’t think I will see that print.

If you’re shorting stocks here, you’re shorting Obama January 20th. I bought QQQQ yesterday for the first time since we opened the firm, so you know where I stand. To borrow a call from the beloved sell side, “ I am reiterating my buy rating” - BUY American, and be patient on price.
KM

Keith R. McCullough
CEO & Chief Investment Office

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