By Teeka Tiwari

The Italian government debt market is the third largest in the world, far too big to be saved should it fall.

 

Prime Minister Mario Monti, now on his way out, was the poster boy for EU compliance whereas former Prime Minister Silvio Berlusconi has been making noises about abandoning the euro and returning to the Italian lira. It would be an understatement to say that this would be generally considered a bad thing if it happened.

 

So far global equity markets are taking the internal Italian politics in stride and Italian government bond yields have moved higher but not wildly higher. The markets' laissez faire attitude about this potential unknown is a little worrisome.

So what's to watch this week?

 

iShares MSCI Germany Index Fund (EWG)

German markets look ripe for a drop this week and EWG is an ETF that gives us direct exposure to a wide swath of German stocks such as Siemens, BASF, Deutsche Telekom and Daimler.

 

The ETF is around its resistance at $24. I'd short it right here with a $24.50 stop. On a mild pull back you'll probably see $22.50. If things go haywire you could see $21.

iShares MSCI Mexico Investable Market Index Fund (EWW)

The Mexican stock market is one to add to your watch list. It's been red-hot and still looks to trade higher. EWW gives you exposure to numerous top tier Mexican names such as Wal-Mart De Mexico, Grupo Mexico and Grupo Televisa. The best time to buy this though is on a pullback. This one is a buy between $65.50 - $66 with a $62 stop and a $72 target.

 

iShares MSCI Spain index (EWP)

If Italy is coming under the magnifying glass so will Spain. This ETF has been a terrific trading vehicle both on the long side (up 50% since August!) and the short side ever since the European woes kicked off.

 

EWP can be shorted right here at nearly $29 with a $31 stop. Look for a price target of $25 on a mild pullback; $20 on a complete debacle breakdown.