Easy ETF Trading: All You Need Is a Weak U.S. Dollar

For 5 trading days, the U.S. dollar was in strong demand. And for 5 days, stocks and commodities were punished mercilessly.

Consider just how quickly the sentiment shifted towards buying the U.S. dollar. The PowerShares DB Dollar Bullish Fund (UUP) had quietly gone about losing ground on a fairly regular basis for months; the exchange-traded fund typically traded around 2 million shares a day.

Then, the U.S. dollar seemed to have hit a floor. UUP rose 2% in 5 days on exceptionally strong volume… record breaking volume for this ETF.

Here’s what happened in those 5 trading days (through 10/28/09):

PowerShares DB Dollar Bullish Trading Volume (UUP)
		28-Oct		6,781,100
		27-Oct		5,984,700
		26-Oct		6,861,400
		23-Oct		3,610,500
		22-Oct		2,454,600

A 2% rise in a currency may not sound like much. However, when it comes on record-breaking volume (a la strong conviction)… when it happens on a daily basis… you get a snowball effect of selling riskier assets.

What are those risky assets? Review my feature, “When the U.S. Dollar Jumps… Some ETFs Get Hit The Hardest.”

In brief, I highlighted why Market Vectors Gold Miners (GDX) was particularly prone to a sell-off. I also discussed how the SPDR Select Materials (XLB) sector and the KBW Bank Fund (KBE) had been cruising for a bruising.

While there was no telling how long near-term intrigue in the U.S. dollar would last, those who fervently believe in the intermediate-trend of U.S. dollar devaluation had easy ETF pickings. In my article, “The International ETFs That Bulls Will Buy When The Pullback Ends,” I explained why Australia (EWA), Brazil (EWZ) and Gold Miners (GDX) would be in the driver’s seat. Indeed… that’s exactly what’s taken place!

International ETFs Slammed By The Dollar’s Rise (10/22-10/28)
					Drawdown %
iShares MSCI Australia (EWA)					-8.0%
iShares MSCI Brazil (EWZ)					-11.0%
Market Vectors Gold Miners (GDX)					-11.0%
How Quickly They Rally When The Dollar Gets Crushed (10/29)
					1-Day % Boost
iShares MSCI Australia (EWA)					1.8%
iShares MSCI Brazil (EWZ)					7.4%
Market Vectors Gold Miners (GDX)					4.5%

Granted, the fact that the U.S. dollar via PowerShares DB Dollar Bullish Fund (UUP) gave back roughly 1% on 10/29… about half of the prior week’s gains… does not mean the pullback is over. Nevertheless, it’s readily apparent how to invest if you are a ”weak dollar believer.”

Full Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.

Comments

[tipalia:]

Gary you must be a very busy person and you still take the time to share your views on ETFs with us . Many thanks for your generosity and your passion which give us more information and more confidence. It happens that I follow and own most of the ETFs cited in your articles and that really helps me in my decisions . Have a wonderful day .

Oct 30 08:46 AM

[tipalia:]

Gary , me again , any thoughts on IHI ?

Oct 30 08:49 AM

[mbkelly75:]

Good ideas and clearly written, thank you for your time and work on this and your other articles.

Oct 31 09:24 AM