NEW YORK (TheStreet) -- ETF investors in the energy space will be looking for safe havens from the BP (DBO) - Get Report fallout, while currency and industrial commodity investors will be figuring out what to do about the deterioriating situation in Europe.
Investors are looking for bargains in the energy space in the wake of the BP disaster, but as I pointed out last week,
Oil bulls received a bit of good news last week as inventories of oil and gasoline declined far more than expected, but current inventory levels are still above average. Investors looking to catch a bounce in oil service ETFs such as
iShares Dow Jones U.S. Oil Equipment
(IEZ) will need a rally in crude.
PowerShares DB Crude Oil
U.S. 12 Month Oil
are superior choices for playing oil here.
Last week, USO made a "death cross" as its 50-day moving average fell below its 200-day moving average. Neither DBO, USL, nor the price of crude oil itself have made a similar cross, which shows how contango has cost USO investors money.
The euro quiets down for a few days and lulls everyone into a sense of complacency before it storms back, either testing new lows or staging a rally. On Friday, it headed for new lows as a raft of bad news came from the continent. Romania had a failed bond auction, Hungary is becoming the next country to watch for sovereign debt problems and Societe Generale was rumored to have derivative losses.
All of this combined to slam
iShares MSCI Austria
, whose banking system has the most exposure to Eastern Europe.
Shares of this ETF replaced
iShares MSCI Spain
iShares MSCI Italy
as the biggest loser in the eurozone. Shares of
Market Vectors Poland
were down even more, as the zloty tumbled more than other Eastern European currencies.
Investors looking for the other side of this trade can try, in order of increasing aggressiveness:
PowerShares DB U.S. Dollar Index Bullish Fund
ProShares UltraShort Euro
ProShares UltraShort MSCI Europe
United States Natural Gas
Although UNG is a flawed product and does not accurately track natural gas prices, it gets close, and its rebound from below $7 to over $8 correlates to a rebound in natural gas prices that have the fuel above its 200-day moving average for the first time since March.
This may be a seasonal move as electricity demand picks up during the summer and prices for natural gas tend to rise in summer and winter, but there are also some favorable trends. At the top is the BP disaster, which highlights the environmental risk of deepwater drilling.
Natural gas appeared to be the best fuel politically because it was cheap and abundant, with enough production to meet almost all of the domestic demand. In various energy and climate change bills, however, it seemed that backers of coal, nuclear and other energy sources were more nimble lobbyists than the natural gas industry.
In the past year, the best performing play on natural gas has been the most conservative, the
JP Morgan Alerian MLP ETN
, which has exposure to companies that produce, transport and store natural gas.
A better bet to play for a rebound in natural gas prices is
First Trust ISE Revere Natural Gas
. It holds the big names in natural gas exploration and production, such as
Powershares DB Base Metals Fund
Industrial commodities are under heavy pressure from a stronger U.S. dollar, concern about the effect of Europe's austerity packages and China's economic policies designed to slow the property sector. In Friday's sell-off, DBB fell below an area that had proved to be solid support several times in the past year.
Last week, nickel was slammed and
iPath DJ-UBS Nickel ETN
sank more than 10%, though it is not part of DBB, which holds futures split evenly between aluminum, copper and zinc.
Except where there is a clear counter-trend, such as may be developing with natural gas, commodities are in a negative trend and the industrial metals are experiencing the most volatility.
Market Vectors Gold Mines
The gold miners are an interesting group because they switch between tracking gold and stocks. Much of this year, GDX followed gold, and earlier in 2010 that meant underperformance, but in April and the first part of May, it meant outperformance.
Gold prices have struggled to move higher after setting a new high in May, and while gold did climb on Friday thanks to more concerns about European debt and the euro, the gain was small. Since peaking on May 12,
SPDR Gold Shares
is down about 2%, but GDX has lost closer to 8%, roughly in line with the S&P 500. Until gold stages a larger move, up or down, GDX is likely to trend with equities.
-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion Money Management owns iShares: Comex Gold Trust, Market Vectors Gold Mines.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.