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“Creativity comes from trust. Trust your instincts. And never hope more than you work.”

-Rita Mae Brown

Some of the best American quotes come from the hardest working American people. Rita Mae Brown is known in some circles for being tennis star Martina Navratilova’s ex-girlfriend, and in others for being a bestselling author about American fox hunting. She was born in Pennsylvania, but was raised in Florida. She’s lived a typically anonymous, yet public American life.

Despite the politically inspired fear-mongering of this being a “Great Depression”, many Americans still wake up every morning with hope in their hearts and hard work on their sleeves. As another University of Florida grad who is becoming popular in conservative political circles recently quibbled about Washington: “They think Americans need a guardian class of really smart people who went to the right schools to tell us what to do.”

That was Cuban-American politician Marco Rubio, who was quoted in this weekend’s edition of The Economist in an article titled “The anti-Crist” (that’s not a spelling error; it’s in reference to the 38 year old Rubio crushing the sitting Governor of Florida, Charlie Crist, for the open US Senate seat in FL). Ironically enough, that same issue of The Economist has a cover titled “Hope At Last”, with a nice blue sky, an American flag, and a rainbow…

Ah… with the weather this nice on the East Coast, how romantic a hope that is… Unfortunately, hope is not an investment process.

The Economist opened its hopeful missive with something that resembled a story line from Little House on the Prairie suggesting that “great storms and floods have a way of altering landscapes”…  “the financial deluge has passed and the recession it caused, the worst since the 1930’s, is ebbing”…

Little House, of course, was a series of children’s books by Laura Ingalls Wilder that were published during the real Great Depression (1). When I see shoppers hurling toward the counter at an Apple store for an iPad, I still can’t find it in me to accept prefacing every analytical point I hear with this narrative fallacy of how bad the lives of America’s upper-class have become.

But that doesn’t mean that a levered up American economy is going to get better from here. It certainly doesn’t mean that we are sitting on the edge of a rainbow that is going to lead us to another inflated pot of gold either. It could mean we just stay the same – politically conflicted, compromised, and confused.

With all of the debts we have created, we are most certainly going to inflate a lot of things in our lives – not the least of which is hope that this US stock market’s +75.6% gain from the March 9th low is going to sustain itself.

I shorted the SP500 on Thursday. So far that position has not worked. It has gone 0.64% against me. It doesn’t make me happy. It doesn’t make me sad. I understand where my risks are, and I will deal with them accordingly. If I see any SP500 price north of 1192 in the coming days, I will short it again. If it holds 1072, I’ll probably cover the position. If it doesn’t hold, and starts to break down like the US Treasury market has, well… that’s not a risk I’ll be bearing.

After you see market melt-ups like this, the most difficult thing to reconcile is that immediate term tops are processes, not points. The more hope you see in the Manic Media, the more careful you need to tread on the high-wire of making sales. Not unlike buying in April of 2009, selling here in April of 2010 is not for the faint of heart.

Wall Street is all about selling stories, not risk management. In early February, after the SP500 dropped -8% in a virtual straight line from its January 19th high, we acknowledged the selloff for what it was – Wall Street and Washington “Selling Fear” – and we got longer. Now, after a +12.3% monster rally from the February 8th low, the only fears that remain are those of either getting squeezed on the short side or missing the next bull market in hope.

Selling high is never easy, and I certainly don’t always get it right. From an intermediate term TREND perspective, the SP500 is undoubtedly in a bullish position. In fact, its in what we call a Bullish Formation, where all 3 of our core investment durations underpin one another. That said, Bullish Formations always get immediate term overbought. Nevertheless, our TRADE, TREND and TAIL lines of support are as follows:

  1. TRADE (3 weeks or less) = 1172
  2. TREND (3 months or more) = 1124
  3. TAIL (3 years or less) = 1039

At this stage of the rally, hopes and fears are the same thing. You can hope you aren’t chasing another immediate term top, and at the same time fear that you are selling something that will never go down again. That, of course, isn’t born out of anything other than what’s inside your brain.

My friend, Dr. Richard Peterson, who wrote the book on this (Inside The Investors Brain, 2007), would chalk this up to your stress hormones and how they behave when you are faced with something that isn’t working. Whether that be your short positions in the SP500 or your view that this “recovery can’t be real”, they are one and the same.

The art of this game is sometimes simply turning everything, including your iPhone, off. After all, corrections always come. Timing the when is more about math than hope.

My immediate term lines of support and resistance in the SP500 are now 1172 and 1192, respectively.

Best of luck out there today.


American Hope - Marco Rubio