I have a new-ish squier strat. When the bottom strings (the steel ones) are played on the first (and sometimes second) frets, there is virtually no sound produced or a really clanging sound. I think maybe the string is touching on the fret in front but I am not sure of this. I assume it is a problem with the action. Do I need the action higher or lower??
You might as well make the action higher.
you need to RAISE the action for sure, and all the string are "steel"
Slowly raise the saddles and re-tune and test. Get it where you can bend a full step up through the whole neck without fretting out, then you should be good to go!
Raise it. Squiers are like that. Somtimes they're fine, but others have little problems.