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    MARKET EDGES

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In the face of ugly “Tech” earnings outlooks yesterday, the Nasdaq opened weak, but failed to “crack” at my code red support level. Instead, the market found its footing again, rallying smartly into the close. As the facts change, I do. The US market “Trade” facts remain bullish as a result, and it looks like the 1 range that I’m in print with is going to be reached. Now what?

Now that the sharks have bloodied the crowd of “hedgie” seals in the short selling waters, and US Financials have been squeezed for a +31% move in 5 trading days, we can recalibrate our sights. Right on time, after the market close, Fast Money’s “Commodity King”, Dennis Gartman, comes out bullish on the Financials “buying the bank index”, and Larry Kudlow cheered him on, like only one of the Hanson Brothers could. This is AFTER a +31% move – gee, thanks Dennis. He should stick to commodities where he has an admirable investment process.

Alongside them, self professed macro savant, Don Luskin (Strategist for Trend Macro), said on Kudlow last night, “absolutely – summer rally… “we have a recovery on our hands…”? This guy must live in a house with no accountability mirrors. He’s been long and wrong for all of 2008, and he still has the audacity to talk down to everyone on Kudlow whenever we have an up day. The only “Trend” I see in Trend Macro’s call is mental inflexibility.

Cart out Gartman, Kudlow, and Luskin, and buy US Financials today at your own risk. I’ve been running net long for this US market “Trade”, but I will not mistake it for a “Trend”, yet… I need to see more cards… but bears beware… the ones that are showing face up on the tape this morning are bullish. We had a big volume day yesterday, with solid breadth, and a breakdown in volatility (VIX). Commodity country tapes like Russia, Brazil, and Saudi Arabia, are breaking down, alongside US Treasuries. I like what I am seeing for once.

On the heels of the Philadelphia Fed’s Charles Plosser talking up the US raising rates intraday, the almighty inflation river card continued to show expeditious deflation. So far in July the CRB Commodities Index down -11% from its high, and the US Dollar is starting to base as a result. You do not want to be short this hand of macro factors. I moved to +49% net long into the close, my most bullish position on the long/short equity side of my book in well over a year.

Rather than chase the aforementioned consensus crew into a group that’s already moved +31%, I like the idea of being long Asian ETFs and related companies. I splurged and bought the Chinese ETF yesterday (FXI), and I think that’s where you want to be ahead of the Olympic catalyst in August. I am still long back door plays on the Olympics like DWA (Kung Fu Panda), and DELL. I have been bearish on Asia since November, so this is a material shift. We called out China and India yesterday as breaking out on short term momentum indicators (see the portal for charts). This morning you see the “why” as India ripped the shorts closing +5.9% on the session after PM Singh won a political crisis confidence vote. Fortuitously I am out of my India Fund (IFN) short position.

On a relative basis to the US, Asia has sober monetary policy combined with legitimate organic economic growth. Only part of the stock market value proposition could change for me here in the US if Bernanke goes ahead, provides some leadership, and raises rates. On the US economic growth front, I am still begging for scraps as to where we’re going to find it, sans the “Blue Magic” Wall Street leverage. Heck, even George Bush is calling out Wall Street as being “drunk” at this point. When Bushy finds the fundamentals, it means they are not trivial anymore folks.

A +6.5%rally in the S&P 500 in 5 trading days is not going to bring back easy “Access to Capital”. As 10 year yields tick up again this morning to 4.14%, “Cost of Capital” continues to rise; meanwhile, the worrisome sound of “Re-regulation” of the US Financial system is in motion. So tread carefully up here on the momentum “Trade” high wire. Long Financials? Not here. But don’t be short this market, yet…

Good luck out there today,
KM