News broke today on the bailout plan for Freddie Mac and Fannie Mae (http://www.nytimes.com/2008/07/14/washington/14fannieweb.html?hp)

We saw a strong bounce in both stocks on Friday after Paulson stated that the federal government wasn’t interested in an outright takeover but would support both entities in their current form. The above article gives more detail on how the Bush administration intends to handle the potential liquidity crisis facing both entities. The immediate impact is that the Fed will allow both companies to use the Discount window for short term borrowing. The White House has also indicated that it would ask Congress to increase the line of credit available from the Treasury. Currently, each company only has $2.25 billion available, a level that was set 40 years ago. The White House would also seek congressional approval to purchase up to billions in equity in both companies.

This news will continue to keep both stocks In Play tomorrow. The first question that the market will ask is how much of this plan was priced in during Friday’s trading session. Both stocks will trade heavily in the premarket on this news.

The market will also look at the demand for the $3 billion in debt that FRE is pricing tomorrow. I would expect the spreads on the deal to be pretty tight. If not, we won’t see a large pop in the stock prices of either.

Important levels in FNM will be 11.80/12. If it holds above 12 upside may be as high as 17.

Important level in FRE will be around 8.5. If it holds above there then 10 will be the next resistance with possible upside to 12.

FRE was more volatile in % terms on Friday but both closed around 3.5pts off of their lows. At a minimum I would expect a 2 point intraday range for both stocks with a lot of money available to nimble traders.

 Monday Update: FNM was at 13.30 at 7:55AM when I got to the office. I traded it with a long bias up to 14.30.  It has pulled back to 13.90 now.  Important levels for today will be 13.30 support.  14.15/14.50 Resistance.