At first glance, China and Wall Street appear to have won this round of trade agreement.
Who lost? It seems that the loser is America. China has been exploiting the US for the last 40 years. Let's use a chart to discuss a possible investor game plan.
Read: This ETF can protect you from the volatility of the S & P 500 and improve your long-term returns.
Please click here for a commented chart of the Dow Jones Industrial Average ETF
DIA, + 0.07% .
Investors can also use a chart of the S & P 500 ETF
SPY, -0.04% .
Those with portfolios that are heavy in technology should keep an eye on the chart of the Nasdaq 100 ETF
QQQ, + 0.02% .
Note the following:
• The graph shows the top-most-likely zone on the top when good news appears either on the trade front or corporate earnings.
• The diagram shows the zone with the highest probability without outbreak.
• The graph shows the Arora buy signal.
• The relative strength index (RSI) shows that the stock market may tend both ways.
• The graph shows that the volume on downhill days is higher. This indicates a high level of risk in this stock market.
• The details of the first phase of the trade deal are missing. Therefore, it is not possible to draw a final conclusion.
• The Trump government calls the agreement substantial, but it is difficult to see how China has not overtaken President Trump.
• China has agreed to buy up to US $ 50 billion in US agricultural goods. This amount is only about $ 25 billion higher than what China would have bought without a trade agreement. China needs these agricultural products to feed its people.
• On the US side, this is a tiny amount for the US economy.
• The agricultural part of the deal helps Trump re-elect farmers.
• There is much talk about China agreeing to currency transparency. Trump has exaggerated that China has devalued its currency to gain an export advantage.
• The reality of the currency issue is that every time the yuan drops, China's outflows increase. China does not want capital outflows. For this reason, it is in China's best interests to keep its currency stable.
• On the surface, currency trading does not seem to give the US an advantage.
• Chinese exports to the US declined 22% in September over the previous year. This is the result of the tariffs. China can not afford higher tariffs. However, in this first trading phase, China succeeded in canceling the tariffs that were due to enter into force on 15 October.
• The cancellation of tariffs on October 15 will reduce pressure on China to do better business for the US.  • The actual questions of technology transfer, government subsidies and structural change are not part of this agreement.
• Wall Street wins as Wall Street is short-sighted and the stock market is expected to rise only for a short time.
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Investors should pay attention to the zone with the highest probability without any breakout in the graph. The most likely scenario is that the stock market in this zone will remain tied to bandwidth unless there is more news.
Investors should closely watch Apple shares
AAPL, + 0.11%
because Wall Street has assumed that everything is clear with China.
Investors should also watch the shares of Facebook
FB, -0.38% ,
aco, + 0.42%
acoL, + 0.42%
because of the strong headwind these stocks could face when Elizabeth Warren beats Trump. The performance of these stocks shows that Wall Street assumes that Trump will be re-elected.
Investors should closely watch semiconductor stocks such as Xilinx
XLNX, -0.25% ,
AMD, + 1.55% ,
and Micron Technology
because of their heavy dependence on China. Semiconductor stocks are often an early indicator.
Investors should also keep an eye on gold ETFs
GLD, + 0.47%
and silver ETF
SLV, + 0.98% .
At the moment, the gold and silver price movement shows that everything is clear for stocks.
Do not be fooled.
Do not let the reaction and positioning of Wall Street fool you. Do you remember that Wall Street proclaimed Hillary Clinton victorious? Do you remember that Wall Street has announced that the stock market would fall if Trump were elected?
Disclosure: Subscribers to the Arora Report may hold positions in the securities referred to in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist 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 [email protected]