As I've mentioned before, it's my belief that the key metric to look at as a proxy for consumer and business confidence is President Obama’s approval ratings. They've steadily declined despite a strongly rising stock market. This brings up a most worrisome query to keep in the back of our minds as we go forward: Where would the ratings be if the market was declining? Where will they be if the market begins to decline?

The most disturbing thing reflected in the polling is the sharp rise in the unfavorable ratings for the new president. According to pollster Scot Rasmussen, only 32% of Americans “strongly approve” of Obama’s presidency where as 40% “strongly disapprove.” The latter figure has increased by over 10 points in little over a month. It's the worst reading for a president so early in his first term. Perceptions of Obama as being an extreme liberal have also skyrocketed: 48% of Americans classify him as “Very Liberal” which is up 20 points since he was elected.

All of this signals future political polarization, gridlock, and a souring social mood. Most importantly, it's signaling an erosion of confidence in the government’s ability to lead the nation out of its current economic crisis.

After earnings season is out of the way, the market will necessarily focus its attention on macro factors. I don’t expect the data to give definitive answers in the debate between bulls and bears. To the contrary, we should expect confusing and contradictory signals.

This is to be expected when the market is undergoing the first stage of a transition -- from mostly positive news flow to equally positive and negative news flow and then to mostly negative news flow. And, remember: The news isn’t just about the cold hard data. It's also about the way the data is interpreted. In this regard, keep an eye on Obama’s poll numbers. They should serve as a good proxy for social mood; they'll give us clues as to whether economic data will tend to be perceived positively or negatively.

The trading stance? Some bearish positions include a put on DB, a short on STD, long DTO, a put on RSX, short FCX, and short EEM. Long positions include AAPL, PALM, GOOG and BAC. I am probing with a net short position gingerly, on a trading basis, with tight stops. I short SPY and/or go long SDS to build net short exposure. I do not have a core net short position. I don't have a core short position; I have a trading net short position, and the distinction is important.

On an intraday basis, I'm even willing to go net long -- particularly when support levels are tested. My hypothesis is that this is a top. As such, one must be cognizant that it can blow to the upside.

The time for more aggressive shorting may come in the latter part of the year as some of the factors I mentioned in Ten Reasons the Countertrend Rally May Be Over begin to manifest -- particularly with regard to events in Europe. It's my view that the market is in a transition -- there are currents flowing both ways -- and my trading stance reflects this.