RISING US DOLLAR PROFUND AND PROSHARES US DOLLAR INDEX BULLISH FUND ARE AVAILABLE -- RYDEX OFFERS EIGHT FOREIGN CURRENCY ETFS -- THE YEN HAS GONE FROM WORLD'S WEAKEST CURRENCY TO ONE OF THE STRONGEST

RISING DOLLAR FUNDS... Following my article on the possibility of a dollar bottom yesterday, I received a number of questions on how to play a dollar rally. One simple way is to buy the Rising US Dollar ProFund (RDPIX). This mutual fund is designed to match the performance of the U.S. Dollar Index. Chart 1 shows that it's doing just that. As I suggested with the Dollar Index yesterday, however, the RDPIX still needs to clear its December high to confirm an uptrend. There's also a Dollar ETF to consider. Chart 2 shows the PowerShares DB US Dollar Index Bullish Fund (UUP). It too appears to be bottoming. In addition, there are ETFs that cover all of the major foreign currencies.

Chart 1

Chart 2

RYDEX CURRENCY ETFS ... Since we're writing about currency markets, you should be aware that Rydex offers no less than eight foreign currency ETFs, which include the Australian Dollar (FXA), the British Pound (FXB), the Canadian Dollar (FXC), the Euro (FXE), the Japanese Yen (FXY), the Mexican Peso (FXM), the Swedish Krona (FXS), and the Swiss Franc (FXF). Two of them that have benefited from the recent unwinding of the carry trade have been the yen and Swiss Franc.

Chart 3

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YEN RALLIES AGAINST MOST MAJOR CURRENCIES ... Over the past year, the Japanese yen has gone from the world's weakest currency to one of its strongest. It recently hit a thirty month high against the U.S. Dollar (which is what Chart 3 measures). Even more impressively, the yen has been gaining ground against all of the world's major currencies since last July when the yen carry trade started to unwind. In other words, global traders started buying back yen and selling higher-yielding currencies. Charts 5 through 8 show the yen's seven-month advance against the British Pound (+17%), the Australian Dollar (+9%), the Canadian Dollar (+8.6%), and the Euro (+7.4%). The unwinding of the yen carry trade is one of the reasons global stock markets have been selling off. One way to capitalize on that trend is to own some yen.

Chart 5

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POWERSHARES COMMODITY ETFS ... Powershares also offers at least eight ETFs based on commodity prices. They include agriculturals (DBA), Base Metals (DBB), Energy (DBE), Precious Metals (DBP), and the DB Commodities Tracking Fund (DBC) which is a commodity basket. Chart 9 shows that commodity fund surging to a new record high today which matched a similar move by the CRB Index. Agriculaturals continue to lead the commodity advance (Chart 10). Precious metals and energy were also strong, with gold gaining $13 and oil jumping 4%. Although industrial metals like copper have been the weakest commodity group over the past year, even they had a strong week.

Chart 9

Chart 10

BASE METALS HAVE BEEN WEAKEST COMMODITY GROUP... Chart 11 shows the Powershares Base Metals ETF (DBB). Industrial metals (like aluminum and copper) have been the weakest part of the commodity universe over the past year. That can be seen by the Base Metals/ DBC ratio (bottom of chart) which fell throughout most of 2007. That's one of the leading indicators I used to warn of global economic weakness. This week, however, a jump in copper helped push the base metal ETF to a three-month high. It has also broken six-month down trendline. I'm not sure what that's telling us about the global economy, but it does suggest that industrial metals are finally being pulled higher by general buying in the commodity group.

Chart 11

TAKE WHAT THE MARKETS GIVE... I received some interesting e-mails this week. One suggested that I stick to stocks and leave other markets alone. Another asked what to do in the current bearish stock market environment. And another told me to stick to "practical" things. I'm not sure what that means, but I assume that reader wants me to stick to stock picking. Unfortunately, pickings are pretty slim in the stock market right now. We've been writing bearish commentary on stocks for the past few months and there isn't much new to say there (see Chart 12). Except for those who own bear funds (which we've recommended), very little money has been made in the stock market this year. Most of the money is being made in other asset classes like bonds and commodities. Hence, our interest in those markets. This week, my attention turned to currency markets. There may be some opportunities there as well in the U.S. Dollar and Japanese yen. It makes no sense to focus exclusively on stocks when they're in a bear market (at least until there's some evidence that the bear market is ending), especially when there are bull markets in other asset classes that you can take advantage of. My job is to point them out to you. In those cases where we've called your attention to rising markets, we've shown ETFs that allow you to take advantage of those rising trends. That strikes me as a pretty practical approach.

Chart 12