Here’s What to Do as the Trade War Goes Nuclear
Yesterday’s selling was relentless.
The major averages posted their worst performance of the year, led lower by the Nasdaq Composite’s drop of nearly 3.5%. The Dow wasn’t too far behind, shedding 767 points for a loss of 2.9%. Brutal…
But the Feds weren’t satisfied with these losses, so they decided to label China a currency manipulator late yesterday afternoon, prompting additional sellers to come out of the woodwork after the closing bell.
In less than a week, the major averages have coughed up their summer gains, landing at prices we haven’t seen since early June.
Up until this month, the trade war had been a slow burn. Other than the occasional market hiccup, the on-again, off-again spat had yet to produce a legitimate panic on Wall Street. Then China’s surprise move to devalue its currency and suspend purchases of U.S. agricultural products changed everything.
Yesterday’s best soundbite comes from Cowen’s Chris Krueger, who called China’s move to retaliate and devalue the yuan “massive” and that “on a scale of 1 to ten, it’s an 11.”
Our one saving grace is that China’s central bank “indicated that it might not permit a steep depreciation in the currency,” the WSJ noted earlier this morning, helping the yuan claw back above the 7- to-the-dollar range it breached yesterday for the first time since 2008.
Futures are higher following the news — so you can stop crying in your coffee for now. We’ll keep a close eye on the beginnings of what could turn into a strong oversold bounce today.
Keep reading for some critical trading instructions…
Let’s take our trading portfolio’s pulse following yesterday’s vicious slide.
You have two choices after experiencing a major market event: You can either freak out and indiscriminately sell any play in your portfolio that took a big hit. Or you can take a step back and do your best to objectively assess market conditions.
I’d much rather dig up some juicy opportunities that have a shot at outperforming the averages when stocks begin to recover. It beats the hell out of panic selling or mindlessly watching the averages as they tick lower.
Let’s get to it.
First, your VanEck Vectors Gold Miners ETF (NYSE:GDX) position is absolutely killing it as investors fight to get back into gold.
A little volatility at the end of July didn’t derail the precious metals bull as the miners gapped to new 2019 highs to start the week. GDX posted new 2019 closing highs yesterday after it gained almost 3%. It doesn’t get any prettier than this:
A few of our newer trades are also acting surprisingly constructive during the selloff.
Shopify Inc. (NASDAQ:SHOP) is maintaining its uptrend despite losing some momentum during the market turmoil. The stock bounced near its 50-day moving average Monday morning and finished the day down only a little more than 3%. Not a bad look for a stock that could have easily endured a double-digit decline. Buyers are still clearly interested in this software winner.
Then there’s Twitter Inc. (NYSE:TWTR).
The blue birdie is getting plenty of attention lately as the investing world hangs on Trump’s every tweet. But I’m more interested in the price action. The stock has fared much better than the averages since the selloff began. It’s even managing to stay above its breakout zone just above $40.
While yesterday’s decline of more than 5% wasn’t ideal, this chart is far from broken. A springboard move off newly-formed support could help this fresh breakout push to new highs. We can add to our position if the stock pushes materially into the green today as the market begins to flash signs of an oversold bounce. I’ll update you on this play tomorrow.
Finally, my favorite chart coming off yesterday’s plunge belongs to Roku Inc. (NASDAQ:ROKU). Not only did ROKU halt its slide after tagging its 50-day moving averages — the stock also powered into the green to close higher by more than 2% on the worst day of the year for stocks.
ROKU reports earnings tomorrow after the close. Thanks to yesterday’s impressive performance, we have a nice cushion of gains heading into the announcement.