My Top-Seven ETFs for 2011 — Part VI

During the past five weeks, we’ve talked about the ETFs that make up my top-seven list for 2011. Today, we continue with our series, and this time it’s all about a bet against Europe’s primary currency. However, before we dig into the details of this week’s offering, let’s recap our first five ETFs.

Part I in our series was the SPDR S&P Oil & Gas Exploration (XOP), while Part II was the Market Vectors Agribusiness ETF (MOO). Part III was the Technology Select Sector SPDR (XLK), and Part IV was the metals and mining stocks ETF, the Market Vectors Gold Miners ETF (GDX). Part V in our series was the ProShares Ultra Dow 30 Fund (DDM).

Part VI is the ProShares UltraShort Euro (EUO).

This fund, EUO, essentially is a double-down bet against the appreciation of the euro vs. the U.S. dollar. The fund seeks to provide daily investment results (before fees and expenses) that correspond to twice the inverse of the daily performance of the U.S. dollar price of the euro. To achieve these results, the fund invests in any one of several combinations of the financial instruments, including swap agreements, futures contracts and options contracts.

As you can see by the chart here of EUO, the euro-dollar trade has been very volatile during the past year. Lately, the U.S. dollar has fallen relative to the euro, and that’s driven down the value of EUO. I suspect that this trend will reverse itself again in 2011, the same way it did from March to June last year, and again from November to December.

If we see an uptrend in this fund, i.e., a decline in the euro and a rebound in the dollar, it could be the catalyst needed to put some risk capital into EUO. These kinds of volatile, short-term trends in leveraged ETFs like EUO represent the kinds of opportunities we look for in my ETF Trader advisory service, as that service is designed for more aggressive traders.