News flash 'Fed is bailing out the entire U.S. financial system'... Ok, it's not exactly the same headline, but the message is clear. In case you haven't heard, Fed. has announced the "unlimited" lending program for Freddie and Fannie! Yes, once again, a crisis is seemingly averted and the market will react positively early on. Once again, more money is being printed to fund the bailout process! Never before has the government played such an active role in the private sector. It was just a year ago when all the critics were saying the Chinese government was bank rolling all of their state companies and creating unfair competition with the western companies.
Ok, we are not going to get into "what should be the right thing to do from Fed" debate here. We just want to point out that, lately, there's a sense that Uncle Sam is stepping into dangerous territory to exercise its power. Whatever that's being "fixed" short term, in our opinion, may have bad repercussions down the road.
So what do we do as traders in light of this news? We don't think there's any reason to chase any of the financial companies since earning reports are on the horizon from a couple of key players. Instead, we feel this news will definitely add more pressure to the U.S. dollar and give commodities a further boost. On Friday, while the general market traded in a wild fashion due to the Freddie/Fannie situation, many commodity plays exhibited very steady behaviour and most of them closed near high's for the day. We did add some positions back near the close as per our alert comments earlier regarding a firm close possibility from our plays.
We are officially into the core of the earning season as many big companies are set to report this week. On the other hand, we feel the recent commodity correction may be over and we are back into buy on weakness strategy. Haynesville Shale plays look the best right now and we'd concentrate on those the most. Both Agri'. and Coal groups don't look too bad either and we'd be monitoring for some good setups and/ or news. The only group that is still iffy at the moment is the steel group. Other than CLF, we'd like to be more patient with some of the other names such as X and RS. Earning reports will definitely bring out some surprises, we'll alert when we spot a good opportunity.