I had a guy e-mail me last night about how to play the US dollar if I thought it was going to continue to strengthen over the next 4-5 months. He also asked me what I thought about China, emerging markets, oil, and specifically Petrobras (PBR).

As I have been so busy today tracking the market and have gotten so many e-mail similar to his regarding the US dollar versus overseas, and also commodities and inflation, I decided to post my response to him as my blog today. It tells you where I stand fundamentally, and is technical enough for the traders to follow. So, without further adieu, here is my response.

The Powershares US Dollar Bullish ETF, ticker "UUP," would be one way to profit if the dollar rises. My clients and I are actually double short the EURO, "EUO," which is another way to play it. I was fairly sure the Euro would go down, and I have been perfect on that trade. I wish every trade worked out that well for me, and I would rather be lucky than good any day.

It may be a little late in that trade now. Whenever you are between buy and sell signals, it is much more difficult and the probabilities of being wrong are higher. However, if you feel the European Union is going to break apart (possible, but not sure), then there is still time.

China is putting on the brakes and slowing down AND their economic numbers are massaged anyway. Oil demand was just revised downward two days ago. Therefore, because of this and Europe, I am avoiding all emerging markets right now, not because they may go up, but the risk is extremely elevated. My clients don't pay me to try and hit home runs, although that occasionally happens like the Euro short. They expect me to take risk when the risks are lower and I am much more confident and statistically have better odds.

Petrobras is a wonderful company, and I have owned it in the past, and I do like the commodities play and am long some commodities besides gold. Over the next months I will be looking to enter more commodities based companies. However, it is more about the overall market conditions and which direction the market is heading than how good a company is. Good companies go down in a down market, and bad companies go up in a good market. "All boats float with the tide" and momentum. Right now, technically, we are hitting resistance and volume is decelerating. Not bullish in the short term.

I want to own good companies in an up market, and be hedged, out, or net short in a bad market. Our positions right now are: we are long US stocks (less than 50%) with lots of cash, I am long gold (another easy one), short the Euro, and short the European stock market.

The long US/short Europe markets will act as a hedge if they both go down. However, I believe Europe will go down more and my clients and myself will make money. If both markets go up, we will make less than the overall market, but with significantly less risk. If they diverge, and the US goes up and Europe goes down (a perfect world), then my clients and I will make lots of money. It is all about risk management, not one individual stock or investment. It is about portfolio construction & how all the working parts interact with each other, known technically as "correlation."

The hard part is correlations change over time, and when things are good, they do diverge and you get the benefits of "diversification." However, when things are bad, correlations INCREASE across certain sectors (small, mid, large etc) and across borders (Asia, Europe, & US). Right now I believe the US is the "strongest of the weak," and am out of Asia and short Europe.

I know this is long winded, but I didn't want to give you a trite answer. You can go to www.thewallstreetshuffle.com and see the blogs I post every day. I hope this helps and keep studying,