Risk Management Time: SP500 Levels, Refreshed...

Hope is healthy (I do it every time I look into my baby girl’s eyes); but hope is not an investment process.

My macro model, which re-prices risk every 90 minutes, says anything north of 1138 in the SP500 is immediate term overbought (dotted red line in the chart below). At 1139 (where we just shorted the SP500 in the Virtual Portfolio) the market is up +7.8% from February 8th in as close to a straight line as you’ll see in a monthly data series.

In terms of Mr. Macro’s global interconnectedness, there is a mathematical reality that’s not ironic about February 8th. That was the day that the Athex Index in Greece put in her Freakout YTD low at 1806. Greek stocks are up more than 2x the SP500 (+15.3%) since.

While Selling Fear is easy for the Manic Media to do, getting bullish after markets run-up is even easier. Now is a good time to make sales and take advantage of its immediate term hope. Today’s employment data is explicitly hawkish. That’s why Treasury rates are busting a move higher (bonds lower). Bernanke can only pretend that he doesn’t see real-time economic data for so much longer before he has to remove the “extended and exceptional” language from the Fed’s currently compromised policy of zero percent American money.

In terms of lines of support, I think we could see a fast correction to 1113. You want to be buying/covering down there as the intermediate term TREND line of support (1106) that’s underpinning this market’s strength is real.

Have a nice weekend,

KM

Keith R. McCullough
Chief Executive Officer

Risk Management Time: SP500 Levels, Refreshed...  - s p