Government Intervention Has a Ripple Effect

Over the last month, the intertwined relationships of the markets have been wacky, to say the least. On July 15, the SEC announced its protection plan for Fannie Mae (FNM), Freddie Mac (FRE), and 17 banks and brokerage firms. This move totally disrupted the natural ebb and flow of the market.

Financial stocks bottomed (for now) on that date – which makes sense. But the next part doesn’t make sense. Oil peaked on July 15. What does the U.S. government bailing out financial institutions have to do with the oil market?

When the government stepped in to protect those financial stocks, the dollar rallied. Oil is traded in dollars. And much of the rise in oil over the last year can be attributed to the falling dollar. So the rally in the dollar that started on July 15 caused oil prices to drop.

All this being said, it looks like the dollar has too much resistance to get through in the near term. Plus, at this point, oil has too much support at $110 to blast right through that level. Look for a pullback in the dollar and a rally in oil over the coming months.

You shouldn’t get overly excited about this manufactured rally in financial stocks, or about the decline in oil. The downward trend for financial stocks is still in place, as is the upward trend for oil. The government may have reversed things for the short-term, but this could be a major opportunity for you to short financial stocks and buy energy stocks.

[Ed. Note: As investment analyst Rick Pendergraft suggests, this could be a great time to buy energy stocks. And Rick’s colleague, ETR Investment Director Andrew Gordon, may have the perfect picks for you. In the coming years, energy companies will spend nearly $10 trillion (yes, trillion!) finding and extracting new sources of oil and gas. Andrew has uncovered two best-in-class drilling rig companies that will be on the receiving end of this tidal wave of cash. ]

Inspired by his high school economics teacher, Rick Pendergraft fell in love with the markets at an early age. He entered his first investing competition at 17, and opened his first brokerage account before he finished college. At the age of 23, on the third options trade he had ever placed, Rick turned $1,800 into $22,000 in less than a week, when the company he bought became the target of a takeover. He admits it was a stroke of luck, but it was a memorable education as to the leverage that options can provide. After a ten year career in banking, Rick decided to pursue trading full-time. To get his foot in the door, he started out in the sales department at Schaeffer's Investment Research. It was not long before his talent was recognized and he was invited to apprentice under Bernie Schaeffer, one of the top options traders in the world. Rick thrived in his new position and twice received the award for "Top Trader."Rick has developed a loyal following of readers who are grateful for his timely warnings and profitable advice. He is widely recognized as a market expert and has been frequently quoted by Reuters, BusinessWeek, Forbes, USA Today, the New York Times, and the Washington Post. Rick's primary focus is on identifying short and intermediate term rising and falling trends in the major market sectors. His analysis is based on technical factors along with indicators of market sentimentRick lives near Delray Beach, FL with his wife and three children.