Five Sector Funds You'll Need in 2007

When: Technically, it looks like this ETF bottomed in August and is headed to a buy signal (when the 50-day moving average crosses above the 200-day average) in January. Sell when 10-year Treasury yields start to rise.

What: SPDR Homebuilders ETF(XHB Quote). Good diversification across the sector with no one stock dominating the index. The top 10 holdings make up just 50% of the holdings, and the ETF holds about 5% in each.

Gold

Why: Gold is the best hedge against a falling dollar. The U.S. dollar is headed lower in 2007 on a combination of factors:

• A slower rate of economic growth in the U.S. than in 2006 (especially relative to the rest of the world).
• Interest rate increases in Europe and (still likely but delayed) in Japan while the U.S. is on pause.
• The continuing huge U.S. trade deficit.

When: The dollar looks like it will have a decent year-end rally as traders close out short positions betting on the dollar's fall. There's nothing going on here but a desire to be out of the market over the holidays. Buying in early January could catch a good low price for gold off the dollar rally before the move against the dollar resumes. To know when to sell: $1.36 to the euro might be a short-term top for the euro and bottom for the dollar.

What: You'll get more bang for your dollar (i.e., more volatility, since the earnings of gold-mining companies are leveraged and go up and down more rapidly than the price of gold) by buying gold-mining stocks than by buying the yellow stuff itself. The new Market Vectors Gold Miners ETF(GDX Quote) tracks the American Stock Exchange index of gold-mining stocks.