NEW YORK (TheStreet) -- ETF investors will be keeping a close eye this week on the latest turn in the struggling euro and China's economy as well as a parade of retail earnings in the U.S.
SPDR S&P Retail (XRT)
This is the big earnings week for retail.
Dick's Sporting Goods
are just some of the name reporting this week.
Not all are holdings in XRT, but more than 20% of XRT's holdings report this week. Judging from the trend in analyst estimates, specialty retailers have the most optimism around them. I wrote about
on my RealMoney blog back in March, arguing that the balanced portfolio provides much greater exposure to specialty retail than a market cap weighted index. With the earnings trend still positive for these firms, XRT is still the way to play retail.
On Friday and in the previous week, XRT outperformed the
S&P 500 Index
. Another up week should see retail outperforming again, and the retail earnings may factor into how positive the week turns out to be.
iShares Xinhua China 25 Index
The mainland Shanghai Composite Index of A-shares (which are only available to domestic Chinese investors and some qualified foreign investors), is in a bear market, down more than 20% from its post-crash high in early August. FXI didn't peak until November, and since then it's down 15%. While FXI has yet to breach its February lows, a decline of 5% would send the fund to a new low.
Chinese governments, both central and local, continue to introduce measures designed to slow the property market. There were reports last week that prices in Beijing fell more than 30%, but this was based on the value of transactions conducted in April, not an outright drop in prices. That's a positive sign that the high end of the market is slowing down and that should be good news for most of the country.
It may not be good news for the banks holding mortgages, however, and financials make up 45% of FXI. Last week CITIC Bank, which accounts for 3% of FXI, was the latest bank to announce a capital raising plan involving new share issuance.
On Friday of last week, the euro cleanly broke through $1.25, a long term support level that it had held multiple times since 2008. At the depth of the financial crisis, when the U.S. dollar was extremely strong, the euro always managed to hold that level. The currency, already weighed down by financial and political concerns, saw those political concerns increase after it was reported that French President Sarkozy threatened to pull France out of the euro.
A weaker euro will drag on all eurozone country ETFs and global ETFs with hefty European exposure. It also has the potential to induce further selling in the stock markets, while the recent track record of precious metals shows they may rise. For investors who want to place direct bets against the euro,
ProShares UltraShort Euro
, which offers 2X the daily inverse move in the euro versus the U.S. dollar, is the most concentrated play.
iShares Silver Trust ETF
Gold hit another all-time high on Friday and that is good news for silver. Silver was slammed during the 2008 financial crisis due to falling industrial demand and the wholesale liquidation of investments.
Gold benefited from its status as the monetary metal in the midst of the financial crisis and again during the sovereign debt crisis in Europe. Since there hasn't been a real monetary crisis in the West since the 1970s, many investors have forgotten that silver also has monetary status as the poor man's gold.
Eventually, a prolonged bull market in gold is going to develop a silver lining. While we may not be there yet, silver does tend to outperform gold during sustained rallies and underperforms during the declines. Last week silver bested gold; this week it should do the same.
Global X Silver Miners
If silver has a good week, the silver miners ought to perform well too. Since inception, SIL has trailed
Market Vectors Gold Miners
Market Vectors Junior Gold Miners
. The gap with GDX is the widest, more than 5% underperformance even though silver prices only trail gold by about 1%.
-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion Money Management was long Market Vectors Gold Miners.
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.