The surprise announcement by President Trump of imposing new tariffs on goods imported from Mexico does not change a previously prescribed action item for investors.
Let us examine this issue with the help of a chart.
Please click here for an annotated chart of a Nasdaq 100 ETF QQQ. Similar conclusions can be drawn from the charts of the Dow Jones Industrial Average DJIA and an S&P 500 ETF SPY. For the sake of transparency, the chart is the same one previously published before the current downturn in the stock market. Please note the following:
• I have previously written that technical analysis no longer works as well as it used to. For the reasons, please click here. However, there is still significant value in technical analysis when done right and when combined with fundamental, quantitative and macro analysis.
• At the time of the publication of the chart, the surprise announcement of tariffs on Mexico was not known. The chart was also published in advance of the recent downturn. However, the chart foretold the risks.
• The chart showed a failure of the rally.
• The chart showed the Arora call to buy inverse ETF PSQ which goes up when the market goes down, or short the Nasdaq 100 ETF.
• The chart showed the Arora calls to raise cash and hedges.
• Relative strength index (RSI) on the chart showed only a weak bounce from the oversold condition. This was foretelling more downside.
Stocks to watch for clues
For clues, watch stocks of car companies such as General Motors GM, Ford F and Fiat Chrysler FCAU.
Tariffs on Mexico should not have any major impact on popular tech stocks such as Apple AAPL, Alphabet GOOG, GOOGL and Amazon AMZN. It should also not have any major impact on semiconductor stocks such as Intel INTC, AMD AMD and Micron Technology MU. Movements in tech stocks will continue to correlate to China.
The action item for prudent investors has not changed from what was previously prescribed. I wrote at the time of the original publication of the chart: “All investors ought to consider taking appropriate measures to protect their portfolios.”…Read more at MarketWatch.
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