Will Spain's Economy Drag Down Its ETF? (EWP)

While most of the Eurozone is sporting signs of an economic recovery, Spain continues to be a laggard of sorts, reporting a fifth consecutive quarter of GDP contraction earlier this week.

Granted, the decline in third-quarter GDP was 0.3%, better than the 1.1% drop economists had expected and even though the iShares MSCI Spain Index (NYSE: EWP), the primary ETF tracking Spainish equities, is up close to 40% over the past six months, one has to wonder how long that bullish run can continue if Spain's economy isn't performing well.

Spain is home to some of the largest European companies, including Banco Santander (NYSE: STD) and Telefonica (NYSE: TEF), but that hasn't stopped unemployment from soaring to 19.3% in September. That's the second-highest jobless rate in Europe.

Spain previously had a booming economy, driven by real estate speculation, consumer spending and easy access to credit. Those were the same factors that drove the U.S. economy higher for a few years and later into recession. It appears the same scenario played out in Spain.

That may indicate that EWP is being lifted higher by the market rally, not strong underlying fundamentals and that makes the ETF Professor apprehensive about endorsing EWP as anything more than a short-term trade. Keep an eye on EWP for any signs of weakness that may lead to a good short trade.