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“Don't let the fear of striking out hold you back.”
-Babe Ruth

After yesterday’s move in the market, it’s only fitting that today’s Early Look is U.S. focused. We are swinging away everyday at Research Edge without fear.

Largely on the back of “better than bad” economic news, the S&P 500 increased the most in two months since crushing the 200-day monkey average (875) short seller like a bug. The move higher was convincing with volume up 31% day/day and breadth was very positive (86% advancers/12% decliners).

The good news does not end there. Last night China reported that GDP grew 7.9% (better than consensus) and now trends in Japan are “less bad” as The Bank of Japan raised its economic assessment for a third month.

While the VIX remains broken across all 3 durations, yesterday it was up alongside the S&P 500; this has only happened 13 times since 1990. My guess is the VIX was reflecting the fact that there are still lingering reminders that things are not perfect in this world.

Apparently, the CIT Group Inc. (NYSE:CIT) is probably not going to receive a federal bailout. Finally, the government is doing the right thing. While I have a good friend that works at CIT, the federal government SHOULD NOT bail out CIT. I have no desire to spend my money bailing out another CEO, who may have taken on risk at a time when he should not have. Let the chips fall where they may!

Yesterday’s rally was all about REFLATING assets or as we call it “BURNING THE BUCK” - the dollar index got smoked yesterday, down 1.0%. Not surprising, the consumer names underperformed as they should; the trends impacting the consumer remain weak. It’s being reported today that the US issues with housing are not getting much better. The number of U.S. households on the verge of foreclosure soared by 15% in 1H09, and foreclosure filings rose more than 33% in June year-over-year and were up nearly 5% from May.

For the next two weeks it’s all about earnings and so far the earnings season has started out relatively strong. Of the 6% of the S&P 500 that has reported earnings so far, 71% have reported a positive earnings surprise relative to analysts’ expectations.

Although, as we learned from YUM Brands (NYSE:YUM) a positive surprise does not always lead to positive commentary about the balance of 2009, which is another small reminder that consumers around the world are feeling a pinch - still.

We have laid out our 3Q themes, and most of them seem to be playing out as expected early in the quarter. Yesterday, the “buck was burning," reflating parts of the market. Reflation coupled with a powerful short covering rally (inspired by INTC) led the market to the higher end of our other theme “range rover” - a call that the S&P 500 will trade in a tight trading range of 9% in the intermediate term.

The futures are slightly lower right now; the economic reality is that the world is healing but the wound is still open and CIT is reminding us there is still trouble in corporate America.