Three things are hurting us this week while simultaneously propping up the market.

The first is the indication from the Securities and Exchange Commission (SEC) that it may impose a rule mandating that traders shorting 19 banks and financials actually have to borrow the shares to settle trades. The second is the selloff in petrol prices, which makes alternative energy plays less attractive. And third, the modest rebound in the general stock market makes commodities and other hedges lose value.

What you have to ask yourself is this: Are the financial market’s woes over, and have we now the “all clear” to come back to the general market?

Our answer: The financial mess is far from cleaned up, and there’s no way global economies, let alone the US, are back to hunky-dory.

If anything, dire discussions on Capitol Hill featuring Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke and heated meetings at the SEC lead us to the conclusion that we’ve only seen the tip of the iceberg.

The SEC rule change isn’t a change at all; it’s simply a change of posture on the enforcement of existing rules for trading and shorting stocks. And get this: It’s only supposed to last for 30 days, hardly a reform of the market.

It gets worse; the change only impacts the shares of Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE), Merrill Lynch (NYSE: MER), Paulson’s old shop Goldman Sachs (NYSE: GS) and others that have enough pull to get the SEC to protect their stocks (but not the whole market).

This is crap. The guys dishing out the off-exchange trades and facilitating non-compliance with SEC Regulation SHO, which covers the delivery of shorted shares, are now getting tired of getting whacked by their own devices. But, like everybody else with enough lobbying clout, they’ve come crying to the SEC, Treasury and the Fed.

Even if the SEC’s new rule kicks in, it’ll be moot. You don’t need to short individual banks; you can short an index. No rules are pending to stop that. Even if there were, there are more and more trades to be made in exchange-listed as well as over-the-counter swaps and index securities that are completely hidden from the market. And many of these happen offshore, away from any rulemaking body.

Although many are singing, “The shorts are dead,” most serious traders are singing the next phrase, “Long live the shorts.”

Meanwhile, IndyMac (NYSE: IMB) is toast and National City (NYSE: NCC) is warming for the Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency, along with Wachovia (NYSE: WB), Fifth Third (NSDQ: FITB) and a host of other banks getting ready to hand over of the executive washroom keys to US government employees.

There’s no fix. If anything, we’re only beginning to see the real woes of the markets and the economy.

On the energy front, petrol isn’t done. Near-term supply and demand issues might augur a pullback, but the real reason for oil coming down is that traders are taking profits off the table while US stocks, particularly financials, are experiencing a bit of short-term reprieve. They’re setting up to buy back in, and that’s exactly what we need to do.

Use the temporary reprieve in petrol prices to buy our alternative energy plays. And use the pull-back as a reason to buy our commodity and currency exchange traded funds (ETF).

And it’s a great time to establish or add to our short position in SPDR KBW Bank ETF (AMEX: KBE). The financials may enjoy the rally a bit longer, but there’s no way the US banks are fixed and recapitalized. No way.

Current Ideas

Buy pSivida (NSDQ: PSDV)

The stock is holding its own, trending at about the same level it was before the Nasdaq launch and the artificial support to keep it trading. That could have been a sell trigger, but there was no point exiting at a loss when its Medidur and BrachySil trials are moving along well.

It’s no surprise a small bionano isn’t tearing up the track right now, but the company is still on track. pSivida is a buy.

Buy QinetiQ (London: QQ., OTC: QNTQF, OTC ADR: QNTQY)

The stock has dropped below the 200 pence (USD16) mark and rates a buy here.

Again, higher highs and higher lows form a good technical sign. That, plus an interview with the company’s CEO in the major industry magazine Defense News this week, are signs QinetiQ is in store for some good times moving forward.

This is a good price for a great company. Buy QinetiQ.

Buy Makhteshim-Agan Industries (Tel Aviv: MAIN.IT, OTC: MAIDF)

We’re down a little this week, but not as much as the selling in the commodity market might indicate. Even if some parts of the commodity market sell off, there’s little to suggest, for now, that higher food prices are going to reverse.

The higher food prices get, the more willing and able farmers are to pay up for the latest help from the laboratory.

Although other companies may be getting more headlines, institutions have filed disclosures detailing increased buys of Makhteshim-Agan stock. They’ve figured out what we’ve known for years, that this is a real player in the agriculture technology business. Continue to buy Makhteshim-Agan Industries.

Buy SES Solar (OTC: SESI)

SES Solar is down because petrol is down; there’s nothing wrong with the company, but the sector trades generally with petrol. The higher fossil fuel prices get, the more traders like to buy into alternatives.

SES Solar, and companies like it, won’t trade in a straight line upward. It’s volatile–and its market cap and price point make it even more so.

We continue to recommend this company, which specializes in making rooftop arrays and photovoltaic panels as well as connectors used to hook multiple panels together; this arrangement means less energy is lost from panel to generator–just the thing to set up solar power systems that work better. SES Solar is a buy.

Buy Yingli Green Energy (NYSE: YGE)

Although others in the alternative energy space are down along with petrol, Yingli Green Energy is up about 18 percent.

The China-based company, which designs and manufactures photovoltaic cells and designs and installs arrays, announced that a project to expand plant capacity has been completed. The facility is up and running, which is a good sign for future revenue growth. Yingli Green Energy is a buy.

Sell AeroVironment (NSDQ: AVAV)

AeroVironment is doing what we expected, and it’s up 28 percent (as of midday July 16) since our original Nov. 13, 2007, recommendation. That’s not a bad performance considering the broader market’s numbers during the same timeframe.

The company just inked a deal with US Special Operations Command that could be worth $200 million over the coming five years. But this isn’t a service that’s built to wring every last drop out of stocks.

We love AeroVironment for the long term, but in light of the market’s volatility, this is a good spot to sell for a short-term gain. Sell AeroVironment.

Buy WorldWater & Solar Technologies (OTC: WWAT)

WorldWater & Solar has been slammed because a small, struggling company sold a big chunk of WorldWater preferred shares to save itself from oblivion. That triggered broader selling of the common stock. Panic is an easily spread commodity in the market these days, especially with small cap alternative technology companies.  

The company is doing everything right and is still worth some risk capital. Buy WorldWater & Solar Technologies.

Buy CurrencyShares Euro Trust (NYSE: FXE)

The US stock market, economy and banking system are far from being fixed. And this reprieve in the markets isn’t going to last.

Use this as an opportunity to establish or add to a position. CurrencyShares Euro Trust is a buy.

Buy Deutsche Bank Commodity Index Tracking Fund (AMEX: DBC)

Commodities are indeed in a bubble. Everything–energy, ags, minerals–is being bought, heavily. Some investors may be taking cash off the table, but commodities remain viable alternatives to stocks. We see more upside.

This is an easy way to get our hands on wheat, corn, metals and even some crude via a Deutsche Bank-run fund that tracks this stuff. Short of opening up a futures account, this is the easiest way to raw commodities. Continue to buy Deutsche Bank Commodity Index Tracking Fund on dips such as the one we’re seeing this week.

Short SPDR KBW Bank ETF (AMEX: KBE)

Banks are far from fixed, as we’ve heard from the Treasury Dept and the Fed this week. The KBW Bank Index continues to skid; by shorting the index via SPDR KBW Bank ETF, we profit from banks’ demise.

The SEC might want to slow down short-sellers, but its efforts won’t stop the real market makers from profiting off the takedown of the worst of the US financials.

SPDR KBW Bank ETF targets a collection of banks that make up the KBW bank index. This is an easy way to do what the big guys have been doing, shorting what’s vulnerable, before the market completely catches up. Short SPDR KBW Bank ETF.