The U.S. dollar staged dramatic back-to-back rallies on Wednesday and Thursday of this week. As the outlook for the U.S. economy continues to improve, money is flowing back into the dollar. A rising dollar has generally been bearish for stocks and commodities, so traders with significant exposure to risk assets may want to lighten up and take profits.

One place to consider putting some cash in the near-term is the PowerShares DB US Dollar Index Bullish ETF (UUP), which tracks the performance of the greenback versus a basket of foreign currencies. As has been the case with most of the pullbacks that have occurred in 2010, the likely next downside catalyst for global risk assets is another re-flaring of the sovereign debt crisis in Europe.

The recent sell-off in risk assets can be largely attributed to the strength in the U.S. dollar. While on a longer term basis the general decline in the greenback may make fundamental sense, on a near term basis, the currency looks to be oversold and could continue to rally for weeks or months. This is particularly true when considering the precarious nature of the European sovereign debt situation.

It was not that long ago that many observers and investors were calling for the euro to hit parity with the greenback. The recent Irish problems suggest that this kind of talk may get started once again and a substantial decline in the euro seems like a possibility. This is a bullish indication for the dollar.

Investors will recall the massive rally in the euro which began at the beginning of June when bearish sentiment reached overwhelming levels. Could a similar pattern take place in the U.S. Dollar? If it does, investors who go long the dollar at these levels will be richly rewarded for taking a contrarian stand on the greenback.

The simplest instrument to use in order to gain exposure to a potential dollar rally is likely the PowerShares DB US Dollar Index Bullish ETF (UUP), which tracks the performance of the greenback versus a basket of foreign currencies. The UUP gained 1.70% on Tuesday, potentially signaling a trend reversal. Investors could also consider buying call options on the ETF in order to leverage their upside.

This post is part of a special report, Top Picks for 2010, the 27th annual survey in which TheStockAdvisors.com asks the nation's leading advisors for their single favorite stock for the new year. See all 80 stocks listed here.

"When extreme valuations are accompanied by unbridled optimism or abject pessimism, it virtually always marks a turning point -- and an opportunity; and this is no exception," says Alex Green, referring to the U.S. dollar.

Here, the senior investment advisor to The Oxford Club and Investment U looks to PowerShares DB US Dollar Index Bullish ETF (UUP) as a favorite idea for the coming year.

The S&P 500 is up almost 25% from its March 6 low, and is knocking on the door of the widest and deepest resistance zone in the bear market at S&P 820 to 920.

Yesterday, we discussed the analysis done by Mark Arbeter of Standard & Poor's. Mark concluded that the market is due for a pause and then a "decent advance" before we see another correction.

He ended his report with, "We would use any strength in the stock market to lighten up and then wait for the next bottom to develop before adding to positions."

His analysis is impressive, but this market doesn't read the newspapers. And bullish behavior like that of the past 11 days begets more bullish behavior.

For 25 years, Steven Halpern, editor of TheStockAdvisors.com, has surveyed the leading financial newsletter advisors asking for their favorite stocks for the coming year. This article is one of 100+ ideas in the Best Stocks for 2008 report.

"My top pick for 2008 is the PowerShares U.S. Dollar Index Bullish (ASE: UUP)," says seasonal timing expert Sy Harding in his Street Smart Investor.

"The US dollar has been in a frightful decline against most global currencies for six years now. Its decline has served the US economy well. Among other positives, the weaker dollar made US exports less expensive for foreign consumers, while making imports more expensive for US consumers.

"That has been a win-win situation for US manufacturers in a period when US manufacturing has been a struggling sector of the economy.

"The weaker dollar has made travel to the US, and shopping here, a happy experience for foreign travelers. Without purchases of second homes by foreign buyers, the plunge in the housing market would have been even more severe.