How to be on the Right Side of the Trade

Last week Trump’s tariffs on Chinese imports went live.

American’s are waking up to a new and sobering reality.

A trade war with China.

Beijing has been quick to counter-punch.

Hardest hit will be US chemical producers, as well as auto and aircraft makers.

Also feeling the heat are US farmers.

And of all the US farm products affected by the Chinese tariffs, the one on soybeans carries the most weight.

Soybeans are a crucial part of the global food chain, as a source of feed for pigs and poultry.

And the US is the world’s biggest soybean exporter.

It’s the US’ largest farm export to China, accounting for about one-third of US soybean production, which comes to the tune of about $14 billion.

The irony is that soybeans are produced in the Midwest states which mostly voted for Donald Trump.

On the other hand, China is the world’s largest importer of soybeans.

It needs soy in large quantities to make meal for pigs. Pigs are a key asset in China, as so many Chinese love to eat pork. So, it’s not something China does lightly. But they’re targeting tariffs that will have maximum impact on the US economy.

How else is China retaliating to Trump’s Tariffs?

Keep in mind, Beijing has other ways to retaliate beyond tariffs.

Last week’s move by a Chinese court, to halt Micron Technology Inc. [NASDAQ:MU] chip sales to China over a patent dispute, has Wall Street worried.

Beijing could make life difficult for some US stocks that have a footprint, or derive revenues, in China. That includes some of the biggest names in Wall Street.

An all-out trade war would be disastrous.

But can anything bring both parties back to the negotiating table.

Earlier this year, Chinese telco ZTE corporation was hit with a ban over illegal sales. Network equipment using American parts were sold to Iran. The ban stopped ZTE from using American components, which meant the company had to shut down its major operations.

Trump did an about face to save the Chinese telecom giant and its 70,000 jobs.

But the rescue job isn’t quite over.

The US has allowed ZTE to resume business temporarily, but the US Commerce Department is yet to give the greenlight to US component suppliers to resume sales to ZTE. A decision that is expected by August.

A ZTE reprieve may give China some face to resume negotiations and bring things back from the brink.

How will all this play out?

It’s complicated trying to work through all the analysis.

And much of it contradictory.

Should we fear an all-out trade war?

Some suggest we need not fear a trade war, while other suggest this will bring on the next recession.

Australian Recession: Find out why Australia is poised to fall into recession as soon as this year and what you could do now to protect your wealth. Download here for free.

How to invest in all this uncertainty and unknowns?

If you’ve been reading my articles, you’ll come to find my approach on all this has never changed.


To gauge the direction of the economy, you don’t need to read, and try to analyse, all the information.

Simply follow the weight of money. If you do that, you’ll always be on the right side of the trade.

Always let the charts be guide.

And what are they telling us?

Here’s a weekly chart of the NASDAQ Composite Index:

NASDAQ Composite 10-07-18

Source: Optuma

[Click to open new window]

Trade wars, rising interest rates, anti-EU sentiment in Europe, a nuclear showdown with North Korea.

And all the time the market just climbs a wall of worries.

It’s just what markets do.

A key level to watch now, to gauge where the economy is going, is that February low.

Because while that February low holds, the trend remains up and you can’t call a market collapse with any confidence.

Don’t follow opinions, follow the weight of money.

It keeps you on the right side of the trade.

But an escalating trade war is an unknown.

We don’t know how that will play out.

But what do we know?

We know that US firms have just reported their best profit gains in more than seven years.

The chart above was telling you that already. You don’t need to read that in the press.

We also know the US economy is strong. Non-farm payrolls came in better than expected again. The jobless rate close to levels not seen since 1969.

The US jobs market is as good as its been in most people’s living memory.

The US economy is as strong as it’s ever been, to weather a storm.

But remember, we are approaching the end of the first half of the real estate cycle. That gives us something to watch for in the years ahead. Every share trader needs to know this cycle. It’s gold and you can find out more here.

But as of right now, the market is simply making higher lows. Trend is up.

If you’re trading someone’s opinion about a market collapse, for now you’re on the wrong side of the trade.

Terence Duffy,
Lead researcher, Cycles, Trends and Forecasts

PS: Australia could be headed for a recession in 2018. But there’s a few steps you can take now to protect your family’s wealth. Find out more here.

Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come — which he details in Cycles, Trends and Forecasts.

Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money