Is This the Birth of the Trade War Bear?

Here we go again…

Trump’s Sunday tweets are shaking up the market heading into the new trading week.

“Trump has already warned China that the U.S. will seek additional tit-for-tat tariffs on Chinese exports if China slaps retaliatory tariffs of its own on U.S. exports,” MarketWatch reports. “Sunday’s message may indicate a similar stance toward the European Union.”

trump tweet

The president’s demand for trade policies that are “fair and no longer a one-way street” appear to piggyback on his Friday threat to levy a 20% tariff on European cars as the European Union responded to steel and aluminum tariffs.

Investors are clearly getting fed up with never-ending trade war saga. Will the bears finally take control and push stocks lower?

Here’s your exclusive trade prep for the week of June 25th:

Tactic

European shares are sinking toward two-month lows. Stateside, the Dow Jones Industrial Average is poised to drop nearly 200 points at the opening bell.

The trade war narrative just won’t go away. Industrials are taking the brunt of the damage, with the Dow narrowly avoiding nine straight days of losses thanks to Friday’s modest rally. As it stands right now, the Dow will open at new June lows, less than 200 points above its rising 200-day moving average.

I suspect we’ll start to see some more bearish headlines heading into the new trading week. Traders remain skittish heading into the summer trading months. Yet despite the Dow’s poor performance lately, we’re still seeing pockets of strength that have the potential to deliver us winning trades….

Trade

Oil is on the move once again as traders digest Friday’s OPEC headlines.

The cartel announced late last week it would increase oil output to meet demand, Reuters reports, yet many industry experts don’t believe the move will juice supply as much as some had hoped. That helped boost light crude to impressive gains heading into the weekend, erasing some of its losses incurred during the past several weeks.

Turning to energy shares, the Energy Select Sector SPDR (NYSE:XLE) has remained in a consolidation pattern since roaring off its April lows and topping out at new highs just seven weeks later.

Friday’s OPEC bump helped push energy shares to gains of 2% on the day. After threatening to break down below its May lows, XLE is now back above its 50-day moving average and hinting at a potential breakout.

energy

We’ll keep an eye on some potential comeback moves in the energy space this week. A new breakout here could help push the sector above its May highs and beyond…

Takeaway

Last week, we were closely watching transportation stocks for a new trade.

Specifically, airline stocks were setting up for a potential snapback move. The industry had lagged its fellow transports, pushing toward new 2018 lows earlier this month. Many of the airlines appeared oversold. Some were even hinting at strong breakouts that could produce quick double-digit gains.

But none of these potential trades triggered.

The Dow Jones Transportation Average began the week in the red and never looked back. It has lost nearly 2.75% over the past five trading days. Airlines weren’t cooperating, either. Southwest Airlines (NYSE:LUV) came the closest to triggering a trade on Thursday — but it gave back all of its gains to close near the bottom of its range.

Sometimes the most important trades are the ones you don’t take. We went into last week with a plan. But we didn’t force any action when our potential trade didn’t materialize.

Sincerely,

Greg Guenthner

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Opening Bell Fortunes and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing since 2005. In 2019, the average position in Greg’s Sunrise Fortunes portfolio outperformed the S&P 500 by 1.65x.

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