Five ETFs to Watch

CurrencyShares Euro (FXE) is worth watching. The euro recovered some ground last week, but the Spanish banking situation remains dicey and more banks are being asked to merge.
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CurrencyShares Euro (FXE) - Get Report

The euro recovered some ground last week, but the Spanish banking situation remains dicey and more banks are being asked to merge, to help shore up the banking system by eliminating the weaker banks.

Spain still suffers from high unemployment and weak economic growth, two areas that are unlikely to be helped by the passage of an austerity package last week. This country is now the locus of concern, having eclipsed Greece. Whether the euro stabilizes, rallies or declines, it is likely that in the near-term, what happens in Spain will be driving events. Fitch's downgrade of Spanish debt confirmed this on Friday. News of the downgrade caused a brief selloff in the U.S. market.

iShares MSCI Spain

(EWP) - Get Report

is the country ETF worth watching here as well.

iShares MSCI South Korea (EWY) - Get Report

The political standoff between North and South Korea has heavily dented returns in this ETF. Stocks aren't causing the majority of losses though, rather the weaker Korean won is responsible for the steep decline. Since mid-May, the losses in the won are about double the losses in KOSPI Composite Index of Korean stocks.

While weaker won is knocking this ETF for a loss, it's good news for exporters in this export-reliant economy. South Korea is becoming more competitive versus Japan and China. The thing to watch for here is what we saw with

iShares MSCI Thailand

(THD) - Get Report

, namely a rise or stable performance in the fund on a day when bad news comes out. At that point, investors can be reasonably sure that bad news has been priced into the shares.

WisdomTree Japan Hedged Equity (DXJ) - Get Report

A rally in equities this week will likely be accompanied by a falling Japanese yen. DXJ underperformed

iShares MSCI Japan

(EWJ) - Get Report

in recent weeks due to a strengthening yen during the global equity selloff. A reversal began late last week and should continue into this week.

Rydex S&P SmallCap 600 Pure Value ETF (RZV) - Get Report

The ETF with the largest exposure to

Quicksilver

(ZQK)

, which reports this week, is RZV. This was one of the best performing style box funds in 2010 before the recent selloff. Small caps led the market on the way up, and value led the small cap space.

Quicksilver accounts for 4.1% of assets in RZV after gaining well over 100% this year. That outsize position means the stock will have a large effect on the movement in RZV and analysts are not particularly optimistic, looking for 3 cents versus 5 cents last year. Retail has done well this year though, and analysts have generally been on the low side with their estimates. A market rally this week will probably be led by small caps and good earnings by ZQK would push RZV into the front of the pack.

Claymore/MAC Global Solar (TAN) - Get Report

Two solar companies report this week, the smaller

Canadian Solar

(CSIQ) - Get Report

and the much larger

SunTech Power

(STP)

. TAN enjoyed a nice bounce last week as positive news from

SunPower

(SPWRA)

was perfectly timed with a massive rally on Thursday. The stock increased 22% on the day and TAN advanced nearly 8%.

This week, analysts are looking for Suntech Power to report earnings of 14 cents per share in the quarter ended March. Estimates have bounced around, rising from 11 cents three months ago, but falling from estimates of 17 cents per share a month ago. Analysts have missed the boat with STP in the past four quarters, however, missing on the low side by no less than 100% each time. Looking at how far they were off in terms of earnings per share, I conservatively estimate that STP will beat estimates by at least 30%. STP is the more important company in terms of weighting in TAN.

In the cast of CSIQ, analysts have done a bit better. There was a huge 600% earnings beat back in the June 2009 quarter, but in the past two quarters, CSIQ beat by 28% and missed by 22%. Back in April, the company warned of margin pressure, and estimates for the quarter ended in March have tumbled from as high as 53 cents per share, down to the current estimate of 11 cents per share.

Since CSIQ has the more pessimistic estimates, if it beats earnings on Tuesday, it could set up a good week of outperformance for TAN and solar stocks.

At the time of publication, Dion Money Management owned EWJ.

Don Dion is president and founder of

Dion Money Management

, 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.