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. This week, among his blogs featured below, he wrote about developments in Human Genome, Ford and Treasury bonds.

How Human Genome Moved the ETFs

Posted 7/20/2009 5:20 p.m. EDT

Human Genome Sciences ( HGSI) delivered surprise news when it announced that its lupus drug achieved statistically significant success in a clinical trial; its stock more than tripled, up 270%.

The SPDR S&P Biotech ( XBI) doesn't hold any shares of HGSI, and it had a return of just over 1%. At 0.16% of assets, HGSI didn't make much of a dent in iShares Nasdaq Biotech ( IBB), which also had a 1% rally.

PowerShares Dynamic Biotechnology & Genome ( PBE), however, had 3.43% of assets in HGSI at the start of the day, enough to fuel a 10% rally in shares of PBE. Finally, First Trust NYSE Arca Biotechnology Index ( FBT) spreads its assets evenly across 20 biotech stocks, among them HGSI. The more than tripling of HGSI delivered most of FBT's 15% return on the day.

Besides biotech funds with large exposure to HGSI, Market Vectors Russia ( RSX) and Market Vectors Indonesia ( IDX) were winners, up more than 6% and 4%, respectively.

Currencies ended up being strong plays as well, as I mentioned this morning. PowerShares DB U.S. Dollar Bearish ( UDN) gained 0.7% on the day, about where it started. CurrencyShares Australian Dollar ( FXA) climbed to a 1.9% return, while thinly traded WisdomTree Dreyfus New Zealand Dollar ( BNZ) added 2.5%.

WisdomTree Dreyfus Brazilian Real ( BZF) advanced 1.6%, and WisdomTree Dreyfus Emerging Currency ( CEW), which holds 12 emerging-market currencies, including the Brazilian real, Indian rupee, Chinese yuan, South Korean won, Polish zloty and Taiwanese dollar, gained 1%.

With a 1.1% gain in the bag today, the S&P 500 is 0.5% away from its June intraday peak of 956; the Dow Jones Industrial Average needs a 0.6% rally to crack its intraday high.

Don't Get Too Excited About Ford

Posted 7/23/2009 10:55 a.m. EDT

Coming back from the brink of destruction, Ford Motor ( F) exceeded analysts' expectations with its report that, for the second quarter of 2009, the company earned an impressive $2.3 billion in profit. This number becomes even more impressive when compared with the $8.67 billion in losses from the same period last year.

The Wall Street Journal reports that this is the first positive quarter for the U.S. carmaker after four consecutive quarterly losses. Much of the profit is said to have come from the company's debt restructuring in April, which led to gains of $3.4 billion. On top of this, the company has shed 1,000 employees in order to reduce its cost structure.

The news from the company is great in the short run. However, there are still a number of uncertainties that have me feeling uneasy about the future of the sector. General Motors and Chrysler, the other two companies making up the Big Three, have not done as well as Ford recently. They have had to resort to bankruptcy, federal aid and mergers as their businesses have fallen victim to tough economic realities. Inefficiencies still pose a threat to the industry, and for that reason, I still have doubts for the long run.

Finding a pure play on the automotive industry is a difficult task for investors. Currently, only a single mutual fund comes to mind. Fidelity Select Automotive (FSAVX) allows investors to have access to a number of the largest automotive companies, including Ford, Daimler AG ( DAI), Fiat and Harley-Davidson ( HOG).

The fund has done terrifically during 2009 with a 77.52% year-to-date return through July 22. However, the recent trouble in the automotive sector is likely to persist. Investors should be cautious of holding too much of this fund in their portfolios, as volatility is likely to return in the near future.

Treasury Puts Up; Will the Market Shut Up?

Posted 7/24/2009 7:05 a.m. EDT

ETF traders who believe Treasury bond prices will fall and interest rates will rise can put their money where their mouths are starting today. The Treasury Department is set to borrow $235 billion in the week finishing next Thursday.

The largest auction previously saw some volatility but eventual digestion of the bonds. In May, the government issued $100 billion worth of bonds and ProShares UltraShort 20+ Year Treasury ( TBT) gained 6.7% from the day before the auction to the second day, but fell on the third day and was at a loss to investors who held on for the day after the auctions were complete.

Conditions are ripe for a volatile auction period because bond prices are already falling in the face of advancing equities. Wild cards include a move in the U.S. dollar. Higher interest rates could draw capital into the U.S. and be bullish for the U.S. dollar, but there's a risk that the Federal Reserve may step in to purchase the bonds if the auctions appear to falter.

That could be good news for PowerShares U.S. Dollar Bearish Fund ( UDN) and precious metal ETFs such as iShares COMEX Gold ( IAU) and iShares Silver Trust ( SLV) because traders are likely to pile into this popular trade. Either way, these funds may rally because many investors may be convinced that higher interest rates signal a weak dollar and it may take the pain of seeing their positions reversed over time to teach them a lesson.

Higher interest rates are deflationary, bullish for the dollar and bearish for commodities. Lower rates are bearish for the greenback and, if triggered by quantitative easing, they could be extremely bullish for precious metals.

It makes sense if you think ahead a few months. A failed auction, or successful one at much higher rates, means the government will have to cut back on its spending plans, mortgage rates will jump (killing any housing recovery) and corporate borrowing rates will rise. A successful auction means the government can spend away, people can borrow to buy homes and corporations can roll their debt.

Yesterday, TBT had a near 4% increase, UDN was flat, IAU fell 0.1% and SLV gained 0.7%. Traders who choose to specifically play the short-term changes in the auction market should remember that most investors sold before the auctions completed. Those who want to play the opposite trend can buy iShares Barclays 20+ Year Treasury ( TLT). Direxion does offer triples on the long and intermediate Treasury bonds as well.

Finally, there was an interesting divergence again in First Trust ISE-Revere Natural Gas ( FCG) and U.S. Natural Gas ( UNG). FCG popped 3.7% as natural gas stocks rose with the market but UNG sank 6.7% on higher inventories and an overall bearish picture.

FCG outperformed UNG during the March-June market rally, but underperformed during the June-July slide. With the market back to form, I expect FCG to gain a leg up on natural gas. For a more detailed argument in favor of FCG, see my article on the two ETFs.

RealMoney Barometer Poll
1 What would best describe your stance heading into the coming week of trading?
Bullish
Bearish
Neutral
2 Which of these sectors do you think is set to move up in the coming week?
3 Which of these sectors do you think is set to move down in the coming week?

View the results without voting

At the time of publication, Dion was long FSAVX, IAU, IBB and UDN.

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.

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