THE HOPE [aka OBAMA] TRADE IS OVER

The market temporarily put in a meaningful bottom in mid-November after Obama was elected, and we are fast approaching the next major catalyst date: the inauguration.  As it takes place after the long MLK weekend. The indexes have already risen over 20%+ off the bottom on weak volume so it's time to take profits. The leaders of the rally have been poor-quality companies and early-cyclical industries. Count your blessings and don't get hung up on original cost basis: it's a Sunk Cost!  Reversing the trade to begin short exposure is appropriate as the fundamentals are on your side.  It's difficult to see this earnings season providing a major short covering opportunity due to the recent gains, and the rate of change in 4Q EPS revisions continue on the eve of Alcoa officially kicking off earnings season next week rendering the consensus number somewhat moot. Obama may provide a refreshingly candid assessment of the challenges ahead on a regular basis, but ultimately the best he can do is mitigate the rate of impending job losses with sound policy.  He may have a serviceable jump shot, but the scouting report says he can't drive to the rim with his offhand, let alone turn water into wine.

Last Hour Tactics: Take Profits!  I'm pretty sure the market will continue rallying toward the close and finish positive on the day (maybe not Nasdaq), but that will only reflect light shorts covering IMO. Let's not forget the U.S. employment data the last two days was horrendous and hitting 10% is not baked in yet.  This doesn't even factor the magnitude of the U6 figure ("discouraged" and "underemployed" ... Google it).  How can the international markets not open terribly next week?  Major retailers like Macy's are announcing store closings, and there is no chance January gift card sales will assuage anything.  Internet sales were even down.  Commercial real estate will be the next big industry facing a wave of bankruptcy concerns following the retailers:

• Client customers crippled? Check
• Overleveraged? Check
• Late(r) cycle victim. Check
• Benefitted from recent rally?  Check

You can invest in SRS: an ultrashort REIT ETF.  Take profits in all trading ideas I liked (airlines, dry bulk shipping).  There's probably a short opportunity in the semiconductor industry, and a bankruptcy bet on AMD seems like a chalk bet.  Despite the massive run, I would only start building positions in high yield (HYG) or corporate bond (LQD) indexes in anticipation of a selloff in US Treasuries that has been even more pronounced on a risk/reward POV.  After all I don't see a major shift of bond money flowing into equities, only a rebalancing.  It's only a matter of time when our Treasury auctions start to fail (not sell out) like Germany.  I said Germany, not Botswana.

Is PALM the next APPLE?  If you have to have a long, I would venture into PALM, by and away the star of this week's Consumer Electronics Show in Las Vegas.  Sure the massive short-covering spike is already behind us, but there is always room for a legitimate step-up device in the smartphone industry especially one that stands out in the crowd.  To me, the new phone, exlusively offered with Sprint (S) service, delivers a clear improvement over the iPhone.  PALM is a turnaround story in an area of major secular growth. How many stories like that are out there these days?  Ride the wave.

Left: PALM Pre

Disclosures: Long PALM.