Play Apple and Mattel With These ETFs

Use the funds to game the media hype on the new iPod and to side-step toy-recall concerns.
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Apple's (AAPL) - Get Report brand-new touch-screen version of the iPod music player may not actually be the greatest innovation since sliced bread, despite all the buzz it generated this week. But even small hints of product launches from Apple seem to generate media hype that feeds on itself until consumers and investors alike are whipped into a frenzy.

Moreover, Apple's decision to slash the price of its costlier iPhone put a dent in the company's stock price Wednesday, providing a better buying opportunity.

So now that some members of the media think CEO Steve Jobs can single-handedly save holiday-season sales, what's the best way to play this stock?

Take a look at the

Internet Architecture HOLDRs Trust

(IAH)

. As of August 30, Apple, at 10.8% of assets, was the fourth-largest holding of this exchange-traded fund. The fund also allocates 29.0% of assets to

IBM

(IBM) - Get Report

, 21.2% to

Hewlett-Packard

(HPQ) - Get Report

and 15.4% to

Cisco Systems

(CSCO) - Get Report

.

This ETF meets all the criteria to be considered technically bullish: It has a five-day moving average above its 10-day moving average and a convergence-divergence indicator giving a fresh buy signal within the last 10 days. The convergence-divergence indicator, created by Gerald Appel, uses exponential moving averages to find turning points in the price movements of securities. IAH has also set a new 52-week high in the last five trading days.

There's an old trading axiom that the time to buy

Exxon Mobil

(XOM) - Get Report

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) - Get Report

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) - Get Report

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) - Get Report

, at 6.8%;

Aluminum Corp. of China

(ACH) - Get Report

, at 6.5%;

China Life Insurance

(LFC) - Get Report

, at 5.5%; and

PetroChina

(PTR) - Get Report

, 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) - Get Report

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.

Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.