A question for investors today is how they want to react to President Trump threatening to put more tariffs on Chinese goods.
Let’s explore the issue with the help of a chart.
Chart
Please click here for an annotated chart of ETF S&P 500 ETF SPY, -0.41% which represents the S&P 500 Index SPX, -0.45% Please note the following:
• The Chinese are notorious for dragging out negotiations to get the best deal. Irrespective of your political leanings, Trump’s latest move seems to be in the long-term best interest of the U.S. and the stock market.
• The short term for the stock market is a different story.
• The chart shows five support zones. These support zones are based on a number of factors that have proven to be accurate in the past including how algorithms tend to trade as well as money flows.
• The chart shows the target zone for a potentially explosive rally on a short squeeze. If it turns out that there is a good trade deal soon, those who are short-selling now will be forced to cover at much higher prices.
• Expect stocks that are dependent on China to be affected more. These include Apple AAPL, -1.54% Starbucks SBUX, +0.01% Nike NKE, -2.49% and Yum China YUMC, -1.82% Expect less impact on Google GOOG, +0.34% GOOGL, +0.33% Amazon AMZN, -0.61% and Facebook FB, -0.81% Microsoft MSFT, -0.58% and semiconductor stocks such as Intel INTC, -0.42% AMD AMD, -2.83% and Micron Technology MU, -2.77% may be adversely affected.
• Expect Chinese stocks such as Alibaba BABA, -3.57% and JD.com JD, -4.49% to be adversely affected.
• Expect day traders to make money by trading leveraged Chinese ETFs YINN, -7.44% and YANG, +7.77%
Read: Goldman Sachs says Trump tariff threat ‘raises odds of further tariff escalation’
Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.
Whipsaws
The best thing investors can do is to guard against whipsaws. Expect many whipsaws based on rumors, tweets and new reports.
What to do now
At The Arora Report we provide specific levels of cash and hedges as well as stocks and ETFs to hold. Last week in our ZYX Lower Risk Portfolio, internet ETF FDN, -0.44% was sold because it was overbought. Our portfolios coming into today were well-protected with cash and hedges. These levels are determined based on the ZYX Asset Allocation Model with 10 inputs. This morning we have further raised cash levels and hedges. We continue to hold good long-term positions and plan to opportunistically add as new positions come into our buy zones. We also plan to take advantage of short-term opportunities as they come along.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.