[3 Must-See Charts] Can the Bull Market Survive a Trade War?

The swamp is leaking into the stock market this week.

President Trump announced that the US would begin to implement steel and aluminum tariffs as soon as early as next week. The surprise announcement came as a shock to the markets with the major averages trickling lower on the news. By the end of the day, the Dow Jones Industrial Average had shed 420 points, or 1.7%.

The fake news is now hyping up the possibility of a trade war between the US and other steel-producing nations. But that’s all speculation at this point. Heck, the White House hasn’t even written the legislation yet.

Frankly, we’re more interested in how the market will react after three straight days of significant losses.

Can the market survive another gut punch? Let’s turn to the charts to find out…

1.  Stocks take a beating

We’ve endured three straight days of strong selling this week. Market correlations are high and very few stocks and sectors are bucking the trend.

The S&P 500 is down a total of 3.7% over the past three trading days. The Dow Jones Industrial Average is down 4.3%.

As you can see from the chart, it’s been a steady slog lower since Tuesday morning:

stocks stumble

Both the S&P 500 and the Dow have lost their respective 50-day moving averages during this week’s decline. The VIX is also streaking back above 20 as the selloff intensifies, gaining double-digits during Thursday’s trading session.

Futures are leaking into the red early this morning, pointing to a big gap lower at the opening bell. Traders will have plenty to worry about over the weekend if stocks can’t recover before 4 p.m.

2. Speaking of tariffs…

The Trump tariff news is sending steel and aluminum stocks on a wild ride.

Apparently, there was some confusion and misreporting on the tariff announcement that caused volatility in the sector yesterday. A mid-morning report by CNBC that Trump wouldn’t announce any tariffs reversed a morning rally in the sector, MarketWatch reports. Of course, the rally continued once the tariffs were actually announced.

Tariffs or no tariffs, steel and aluminum stocks have enjoyed one heck of a comeback move over the past six months. US Steel Group Inc. (NYSE:X) is up almost 75% over the past six months:

steel group

The market’s been a little crazy lately — but price still leads the news.

3. Gun Stocks fall out of favor

As the aftermath of the Parkland school shooting plays out in the media, gun stocks continue to struggle to find support.

“The stocks of gun and ammo makers seem to be reacting very differently over the past year or two than they have during the prior 8 years. Whether it is the lack of a focused anti-gun “villain” like Barrack Obama (?!) to scare more gun sales, something is different this time,” Barry Ritholtz explains.

Trump talking gun control helped temporarily juice shares of some of the bigger gun manufacturers this week. But the trend is clearly not their friend.

Just take a look at this one-year chart of American Outdoor Brands (NASDAQ:AOBC) (maker of Smith & Wesson guns):

outdoor brands

That’s not a stock I would want to buy right now…


Greg Guenthner
for The Daily Reckoning

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Greg Guenthner

Greg Guenthner, CMT, is the editor of The Rude Awakening Pro, The Seven Figure Formula and Profit Spy. Over the past decade, Greg has helped build the small-cap and technical research teams. His analysis has appeared in Forbes, Yahoo Finance, Bankrate, and countless other publications. Greg is a member of the CMT Association and holds the...

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