Play Apple and Mattel With These ETFs

There's an old trading axiom that the time to buy Exxon Mobil (XOM Quote) is when oil is floating on the water. The Chinese version of this is that time to buy Chinese stocks is during the toy recalls. Wednesday, in a third round of recalls, Mattel (MAT Quote) added more Barbie and Fisher Price toys to the long list of suspect items. At the APEC summit in Australia, Chinese President Hu Jintao assured President Bush and other world leaders that his country would enhance product safety enforcement. As the media overreacts, Chinese product quality is likely to improve down the road.

As it happens, there are two China ETFs giving off technically bullish signals (neither of which hold shares of Mattel). The Powershares Golden Dragon Halter USX China Portfolio (PGJ Quote) targets stocks of companies that derive most of their revenue from the People's Republic of China. The fund's four largest holdings are China Mobile (CHL Quote), at 6.8%; Aluminum Corp. of China(ACH Quote), at 6.5%; China Life Insurance(LFC Quote), at 5.5%; and PetroChina (PTR Quote), at 5.4%; all of which trade in the U.S.

The fund is highly concentrated in telecommunications stocks, at 20.3% of assets, followed by 14.4% oil & gas, 13.3% internet, 6.7% mining, 6.6% alternative energy and 5.7% insurance.

Lastly, the iShares MSCI Hong Kong Index Fund(EWH Quote) invests in a representative sample of Hong Kong listed stocks that are members of the MSCI Hong Kong Index. More than half of the fund, or 53.3%, is tied up in financial stocks such as Cheung Kong Holdings, Hong Kong Exchanges & Clearing and Sun Hung Kai Properties. The remainder of the fund is composed of 14.2% industrial, 12.3% consumer discretionary, 10.4% utilities and 4.1% information technology.

Right now, the Dow Jones Industrial Average is stepping down from its July high. The index has rebounded from its 10.7% correction, reversing half the loss. However, the move failed to climb above the prior step down on August 8.

If the market doesn't push the Dow above 13,700 in the next week or two, look for a retest of the lows. With any trading strategy, you can lose money. So please remember to place your stop-loss orders to help protect you from sudden moves against your positions. Good luck.