US China Trade Talks have halted so will the stock market crash in 2019? Will we find a resolution to the trade talks? The big news that came out Sunday night was from a Tweet from Trump that he will be raising tariffs on $200B worth of Chinese goods from 10% to 25% this upcoming Friday. And because of this tweet, China is now considering cancelling trade talks all together! This essentially means that the trade talks between the US and China have halted - and this could mean BAD NEWS for stocks.
2018 was filled with headlines of Trade - some good, some bad, and this contributed to pretty much every Chinese stock falling throughout the year and also affected US Stocks as well. However since 2019 rolled around, there has been mostly positive news surrounding this from both sides with almost weekly headlines and tweets saying that trade talks are going well, and a deal is expected soon. Now with this tweet, it seems like the tone has changed, and there may be something that the 2 countries cannot agree on to move forward and as a result, we're seeing the market react to this news as it is uncertainty, and the market hates uncertainty.
Last night, the DOW was down around 500 points, essentially wiping out all the gains from the last week or so and the S&P and NASDAQ also took quite a hit as well. So does this mean we're going to see another October-like selloff? In my opinion - no.
A trade deal agreement between the 2 countries is in their best interest, so IMO, I do think a deal will be reached. Now whatever it is they disagree on, I think will set us back maybe a few weeks, or months, BUT, in the end, I do believe we reach a deal. Let's put things into perspective - from the December lows of around 21700, the DOW climbed up to 26700 - 5000 points, in a span of just 4 months and that too with little to no resistance to the upside, we were just up up and away, day after day, week after week. But if we look at April until now, we can see that the market has pretty much stalled out - and we've been in about a 500-600 point range, trading sideways. When I noticed this a couple weeks ago, it was clear that the market was looking for a something to push us higher and many of us thought it would be earnings, but earnings season for the large companies has now passed, and we're still not broken past cleanly from previous highs. This was because investors still had a wildcard of the China US trade deal closing - and up until today, it was priced in that this was more or less done but the market wanted 100% certainty before we move toward DOW 30000. Now that we have uncertainty again, we're back to prices from a month ago, and I think we may actually go lower before we go higher.
I like to use technical analysis in my investments, to help me with entry/exits and there's a red flag here that I've been watching which I think is what's going to play out. From the December lows, there's 2 GAPS - one around 26000, and one lower around 24700. Now if there's one thing that stocks like to do - it is to fill gaps, especially when there's weakness or selling in the markets. Also when we broke above the 200 MA, we gapped up, and we never came back down to test this level. I think we may be gearing up for this test right now, coupled with the 2 gaps that would want to ideally be filled. This IMO is a healthy move for the market, if this does happen. MANY investors and traders pay attention to these things, and a healthy market is one that doesn't have these kind of holes to poke in.
What I think will happen is we pull back and fill the gap around 26000 first, and then, depending on if the trade talks get better or not, we may come down to around 25200 to test the 200 day MA. If that doesn't hold, then I think we drop lower, fill the gap around 24700, and then reverse back and if we have a deal by then, continue higher.
I share my recession thoughts in the video.
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