Don Dion posts his current insights on the stock, bond, commodity and currency markets in his

RealMoney

blog -- anticipating which ETFs will be in play next. Among his posts this week were the following entries on natural gas ETFs, avoiding the retail plague and the U.S. dollar bottoming.

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UNG Getting Too Big for Its Britches

Posted June 16, 2009 6 a.m. EDT

U.S. Natural Gas

(UNG) - Get Report

powered through the close yesterday and gained 7% even as oil prices tumbled.

U.S. Oil

(USO) - Get Report

lost 2.3% and

PowerShares DB Oil

(DBO) - Get Report

fell 1.8%.

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Interest in the ETF has risen so greatly that the fund wants to issue 10 times the number of shares, according to a

Dow Jones

report, while the

Financial Times'

Alphaville blog reports that some of the new money flowing into UNG has been used to buy swaps instead of futures due to the heavy buying of late.

This means investors are not getting exactly what is promised, since the fund is holding swaps instead of futures contracts. This is confirmed by a visit to the fund's Web site, where investors can see the current holdings.

Another issue is the one of contango, which becomes a greater problem as the fund grows in size. UNG, like USO, uses a "dumb" strategy in that it rolls into the next month's contract. In small amounts, this isn't an issue because the fund is a small part of the market. But as it grows in size, its roll can become a large percentage of daily volume. By announcing its trade well in advance of the trade date, other traders can take advantage of the information and earn a profit at shareholders' expense.

The fund has become increasingly popular in recent weeks, but the demand is clearly overwhelming the market and, as they say, the tail may be wagging the dog. While natural gas may have further to run, UNG is getting too crowded.

Investors who are sophisticated enough to understand the ins and outs of commodity trading may do better in the futures market where they can implement strategies other than a simple monthly roll. Those who cannot get a handle on the issue would be better off waiting for the herd to exit or the introduction of a more suitable product.

Even ETFs Can't Avoid the Retail Plague

Posted June 15, 2009, 4:21 p.m. EDT

PowerShares Dynamic Retail

(PMR) - Get Report

is shedding momentum at a rapid pace. It gained 3.0% in the past month, but that compares to a 7.1% return in the

S&P 500

. In the last week, however, it lost 4.49% vs. a small gain in the S&P 500, and today it is off by more than 2%.

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As with many Dynamic offerings from PowerShares, the fund is well diversified, while keeping the holdings to a reasonable amount -- PMR holds 30 stocks. The top 10 holdings account for 47.25% of assets.

Best Buy

(BBY) - Get Report

,

Amazon.com

(AMZN) - Get Report

,

TJX

(TJX) - Get Report

,

Bed Bath & Beyond

(BBBY) - Get Report

,

Genuine Parts

(GPC) - Get Report

and

Wal-Mart

(WMT) - Get Report

each make up more than 5% of assets, while

Gap

(GPS) - Get Report

and

Kroger

(KR) - Get Report

are each more than 4.5%. From there the allocations quickly drop into the 2% range, with the smallest holding at 2.34%.

In the past three months, investors shunned the defensive Wal-Mart and Kroger, which both had single-digit gains, and headed for the Gap, up nearly 40%, while the rest of the top holdings rallied 20% to 30%. The past month's underperformance relative to the S&P 500 was caused by Wal-Mart, Kroger and Bed, Bath & Beyond, while Amazon and TJX outperformed.

Americans will be saving more and spending less in the future, and anyone expecting a lower dollar must realize that higher imports means higher prices at many of these stores. Write-offs at

Capital One

(COF) - Get Report

and

American Express

(AXP) - Get Report

are at 10% and credit is becoming harder and harder to obtain, developments that directly hit the retail market.

In defense of PMR, however, the PowerShares financial ETFs also underperformed the market in recent months due to the selections of the Intellidex Index. The system worked very well during the market's steep decline as these funds avoided the worst of the selling. PMR is down 7.99% in the past year, for instance, compared to a 15.8% drop for the

Retail HOLDRs

(RTH) - Get Report

. PMR may be the best of the bunch, but it's a sector well worth avoiding for longer-term investors.

U.S Dollar Points to Bottom

Posted June 18, 2009 4:06 p.m. EDT

Investors debating whether to buy

PowerShares DB U.S. Dollar Index Bullish Fund

(UUP) - Get Report

or

PowerShares DB U.S. Dollar Bearish Fund

(UDN) - Get Report

often focus on whether the U.S. will have inflation or deflation. Financial crisis, economic recovery, government debt and international political events are other factors tossed into the debate.

An overlooked technical reading is the correlation between the U.S. dollar and the

S&P 500

. Yesterday, Bespoke Investment Group noted that the rolling six-month correlation between the U.S. dollar and S&P was at its most negative since 1970. Correlation is positive when the two move in the same direction. Rising stocks, rising dollar are positive; falling stocks and falling dollar are positive. A mix either way is negative.

A bullish positive correlation would result from an S&P 500 Index and U.S. dollar rally. Economic recovery could deliver this result if the Federal Reserve began pulling back its monetary stimulus and the economy was strong enough to continue growing, even if at a very slow pace. A bearish positive correlation seems unlikely outside of a major war fought on U.S. soil because it would require the destruction of the underlying assets of the U.S. economy.

A negative correlation, bullish for the dollar and bearish for stocks, could result from events similar to last fall. Financial worries cause debt and equity prices to drop and investors rush for the safety of U.S. Treasuries and cash. The reverse, falling dollar and rising stocks, is an inflationary recovery scenario.

The extreme negative correlation between the U.S. dollar and S&P 500 resulted from a transition between the two scenarios in the previous paragraph. From March until now, there has been a rewind of the events from September to March. Judging from Bespoke's work, the correlation between the two has been more extreme on the positive side. A continuation of the current trend would push the negative correlation to a new low, but in absolute terms, it would not be the most extreme reading. Discounting a repeat of the 1930s, the negative correlation is close to (if not at) a point where a reversal to positive correlation is likely.

At the time of publication, Dion had no positions in stocks and funds mentioned in this column.

Don Dion is the publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.

Dion is also president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.