If we extrapolate from Friday's action then we would be long USO OIH XME MOO as money rotates into the new leadership of commodities. Of course reacting strongly from a few days of market action is not always the wisest thing to do; however, if we get continuation this week of the alleged new trend, then there's a good chance that this is for real. What we're looking for is for money to flow out of REITS and financials and into commodities. The wild card of course is the release of the stress test on Thursday.
If you see the trend continuing and want a pair trade then go short IYR XLF, and go long USO OIH XME MOO. Our feeling is that the aforementioned commodity ETFs will not only outperform the financials and REITs but also the small-caps (IWM), the Nasdaq (QQQQ) and the S&P 500 (SPY).
Hopefully we'll find out this week whether Friday was an anomaly or the start of a new trend. Stay tuned.
HCPG
