How to Play the Rotation Into Soft Goods

As we watch the market get hammered on double-dip talk, I think there will be even more of a rotation into the staples. But I don't want the soft economy to be the primary reason for it. I think the soft-goods rotation is more of a statement about the dollar than anything else -- we hit seven-week lows yesterday on our currency. That could be the answer to the conundrum about how we could be in "recovery" mode and yet still have the rally by the likes of Coke (KO - commentary - Cramer's Take), Johnson & Johnson (JNJ - commentary - Cramer's Take), Merck (MRK - commentary - Cramer's Take) and Pfizer (PFE - commentary - Cramer's Take).

These companies have been decked by the dollar because of the big extrapolation factor. The dollar had been scorching higher after a brief pause and decline, and the trend-followers immediately presumed that it was in an out-of-control bull market again. That, coupled with Obama worries on health care and tradedown on brandeds, produced a hellacious market for a group that usually doesn't get this cheap.

Now it looks like that's over and the dollar is resuming its slide as Europe looks to be turning.

What do you buy if this is the case? First, some obvious ones. Even though I don't even care for it, the weak-dollar people always reach for J&J. I wish they would reach for Lilly (LLY - commentary - Cramer's Take), which makes more sense from a growth perspective, but it is J&J that's the fave. They also reach for Colgate (CL - commentary - Cramer's Take), although here you really should be thinking about a euro vs. dollar trade, and Colgate is a Latin America vs. dollar trade. The weak-dollar players also used to reach for Schering-Plough (SGP - commentary - Cramer's Take), which was the most overseas-dominated, but now you have to play that with Merck, and I am only so-so on Merck's plans. Nevertheless, a combined MRK-SGP is better than a combined Pfizer-Wyeth (WYE - commentary - Cramer's Take) in my opinion, so I would go with it.

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