Don Dion's Weekly ETF Blog Wrap

Still, the ETFs also serve as a gauge of investor interest. If clean energy and semiconductors both see large inflows, for instance, CREE would likely be an even stronger performer.

If CREE were a consumer product, I'd say it was marketing itself well. Whether that means CREE is a buy here is another question, and it's one that single-stock investors may want to answer.

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Dollar Rally or Euro Decline?

Posted 12/15/2009 at 4:21 p.m. EST

Many investors and traders watch the U.S. Dollar Index and ETFs that track this index, such as PowerShares DB U.S. Dollar Bearish Fund(UDN) and PowerShares DB U.S. Dollar Bullish Fund (UUP), to get an idea of the value of the dollar.

The euro makes up about 58% of the U.S. Dollar Index, however, with another 25% or so split between the Japanese yen and British pound plus 9% for the Canadian dollar. Other developed nations' currencies make up the rest of the index.

Notably missing are emerging-market currencies. Brazilian real, Chinese yuan, Indian rupee and South Korean won are absent from the index calculation. An extended rally in the U.S. Dollar Index would signal investors to shift assets from an ETF such as iShares MSCI EAFE (EFA) to a global ETF such as iShares S&P Global 100(IOO) or a domestic ETF such as SPDRs (SPY), but it wouldn't say much about other markets.

In the past five days through Monday, UDN lost 0.64%, less than the 1.08% drop in CurrencyShares Euro (FXE). Clearly, the decline in UDN this past week was due to a weaker euro. Problems in Greece and Austria were among the reasons why the currency headed lower vs. the greenback.

Meanwhile, CurrencyShares Japanese Yen (FXY) gained 1.06%, while WisdomTree Dreyfus New Zealand Dollar (BNZ) gained 2.47% and CurrencyShares Australian Dollar (FXA) gained 0.65%. WisdomTree Dreyfus Emerging Currency (CEW) fell 0.37%.

These moves were mirrored by the equity funds: iShares MSCI EMU Index (EZU) fell 1.68%; iShares MSCI Japan (EWJ) gained 0.50%; iShares MSCI Australia (EWA) added 0.17%; iShares MSCI Emerging Markets (EEM) climbed 0.36%.

While FXA and FXY fell more than FXE today, FXE and EZU were among the worst performing of the aforementioned ETFs. UUP gained 0.71% on the day.

At least for the past week, the advance in the U.S. dollar was mainly against the euro, suggesting that capital is still flowing from the U.S. and into markets such as Brazil, India, China and South Korea, as well as Australia and New Zealand. As I warned last week about Greece and with Austria having banking issues, thus far the situation is a weak euro rather than a strong dollar. Allocate accordingly.

At the time of publication, Dion was long UDN and IOO.

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Talking Turkey

Posted 12/14/2009 at 9:33 a.m. EST

Right now, iShares Turkey (TUR) is at a crossroads. A six-week slide had left the fund's momentum weakened and it riskaed becoming an also-ran emerging-market ETF. However, if TUR continues its recent recovery, the trend may accelerate, thanks to improving technical factors.

TUR used to run with the leading emerging-market ETFs, such as iShares Brazil (EWZ) and Market Vectors Russia (RSX). Its long-term momentum was among the highest of all ETFs this summer, but it peaked on October 14 and has been losing long-term momentum since then.

It bottomed on November 27, the day on which Dubai shook the markets, but then started a rapid rebound on November 30. The upswing was helped by Fitch's December 3 upgrade of Turkey's credit rating to one notch below investment grade.

Last week, the Turkish Statistical Institute said third-quarter GDP fell 3.3% year on year, better than the expected 3.7% drop. However, it also revised upward the country's Q2 GDP decline from 7% to 7.9% year over year. Though the Q2 number was adjusted down, the outlook has improved, and J.P. Morgan (JPM) (JPM) recently upgraded its recommendation on the country from neutral to overweight.

Politics is never far from investors' minds as far as Turkey is concerned, though. The pro-Kurdish Democratic Society Party was outlawed by the Turkish high court on Friday because of its alleged ties to the PKK, or Kurdistan Workers' Party, an armed rebel group. Although markets in Turkey were closed at the time of the decision, the result had Turkish assets trading down.

I believe, however, that investors shouldn't get caught up with the politics unless something earth shattering occurs. It pays to follow the dominant trends and, in that regard, TUR is regaining short-term momentum and ranks ahead of PowerShares India (EPI), Claymore/AlphaShares China Small Cap (HAO) and iShares MSCI Mexico (EWW) in terms of long-term momentum.

Positive news from Dubai also offset the political jitters from Friday's decision in Turkey. News that Abu Dhabi will provide $10 billion to Dubai lifted Turkish markets as part of a broader Middle Eastern rally.

TUR has the potential to re-establish itself as one of the strongest emerging-market ETFs, I believe, and may be an outperformer if Middle Eastern and other emerging markets continue to rally on positive news from Dubai.

At the time of publication, Dion held RSX and EWZ.

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