ETFs For The Week Ahead: This May Not Be Pretty

There is no shortage of anecdotes regarding the fragile state of affairs in global equity markets, but sticking to just the facts, market participants know that the S&P 500 and the Dow Jones Industrial Average each shed more than five percent last week while the Nasdaq Composite bled 6.3 percent.

Apple Inc. AAPL proved problematic for all three major U.S. indexes because the iPad maker is the largest component in the S&P 500 and the Nasdaq as well as being a member of the Dow. As the largest U.S. company by market value, Apple is also the biggest holding in an array of widely followed technology sector exchange traded funds, including the Technology Select Sector SPDR XLK, meaning any and all of those funds merit attention in the week ahead. 

If only the market was so sanguine that we could begin and end the list of ETFs that bear watching in the week ahead with Apple-heavy funds, but that is not the current reality investor are facing. Among the must-watch niche ETFs for the week ahead is the Guggenheim Solar ETF TAN. Simply put, a perfect storm of negativity is battering solar stocks and TAN at the moment.

Falling oil prices are a negative catalyst for solar stocks and then there's the fact that China is TAN's second-largest country weight at 38.3 percent. Over the past month, SunEdison Inc. SUNE has plunged 61.3 percent and last week, famed short-seller Jim Chanos revealed a bearish view on Elon Musk's SolarCity Corp. SCTY. Those stocks combine for 10.5 percent of TAN's weight so it was not surprising that the ETF hit a 52-week low last Friday.

Getting back to the theme of Nasdaq weakness, it is not all about Apple. Biotechnology stocks are playing a surprisingly large role in the Nasdaq's recent retrenchment and that is problematic because the Nasdaq-100 allocates 15.5 percent of its weight to health care stocks, nearly all of which are biotech names.

Over the past month, three of the 20 worst-performing non-leveraged ETFs are biotech funds and last week, the three largest biotech ETFs by assets closed an average of 1.8 percent below their 200-day moving averages. For the risk-tolerant trader, an ETF we've highlighted several times this month, the Direxion Daily S&P Biotech Bear 3X Shares LABD, is worth considering. LABD is up 71.3 percent over the past month.

In the current environment, no list of ETFs to watch in the week ahead would be complete without some emerging markets funds. As we just noted, three of the 20 worst-performing ETFs over the past month are biotech funds, but of the remaining 17, 13 are emerging markets ETFs.

On its own, that factoid is not surprising because the struggles of emerging markets debt and equity have been well-documented. What is concerning about the recent emerging markets bear trend is that Asian markets, previously believed to be pockets of strength in the face of moribund Latin American investment destinations, are among the worst offenders. Of the 13 emerging markets ETFs that have been hammered the most over the past month, 12 are single-country funds tracking stocks in Asian nations.

China is the ringleader of this emerging markets downturn, so the bearish recommendation here is the Direxion Daily CSI 300 China A Share Bear 1X Shares CHAD. We highlighted CHAD a month ago and in that time the ETF, which is not leveraged, has surged 15.2 percent.