Global Materials ETF: Is the Recent Pullback a Buying Opportunity?

You think that U.S. stocks are struggling? Take a gander at the European Monetary Union (EZU) since the U.S Fed reasserted its inflation-fighting credentials 10-weeks ago (4/30/08). (Special Note: I recently exited EZU via our stop-loss approach.)

Wrapped in a baguette, the Eurodollar is to blame. Its appreciation came so far so fast, near-term bullishness on the U.S. dollar has caused some redeployment of assets. In fact, Ireland's recent rejection of a EU reform treaty sent the Eurodollar to a 3-month low against the "greenback."

A detectable slowdown in Europe's economy isn't helping. What's more, the European Central Bank has given investors little indication that it would act to fight a decline in the pace of growth.

Asia has also struggled; in particular, China (FXI) and India (INP) have had one heck of a time trying to get on track.

Yet, all is not lost for the diversified investor in emerging markets. Brazil and Russia have been very potent due to their respective roles as producers of natural resources. (China and India are consumers). It follows that the Claymore BRIC Fund (EEB) fund has weathered much of the pain that has been experienced internationally.

Since the stock markets of countries that produce resources are climbing (e.g., Brazil, Russia, etc.), and if total commodity investing through the Dow Jones Total Commodity Index (DJP) is making phenomenal progress, might there be a sector approach to consider? I still like the iShares Global Materials Fund (MXI).

A 6-month chart of the iShares Global Materials Fund shows remarkable potential. In particular, MXI has pulled back 10% from its highs, even as commodity prices vis-a-vis the Total Commodity Index keeps hitting new peaks.

Indeed, a stronger U.S. dollar could bring commodity prices down, while the companies that produce/dig for/manufacture raw materials will continue to record incredible profits. Ergo... the pullback in the iShares Global Materials Fund may provide a desirable entry point.

On January 10, I talked about MXI in the same manner. (See "Bear Scare Winners KXI, MOO, MXI.") The gains since that time have been marginal, though they've been far better than broader stock markets in the U.S. or abroad.

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