Why Another Big-Profit Stock Market Opportunity May Be Near

Chinese-U.S. Trade Situation Creating Another Market Opportunity
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Market Could Fall 10%, But That Means Opportunities

As I’m writing this, the Dow Jones is down 400 points and has breached its 200-day moving average as we see some selling emerge from the escalation of the U.S.-China trade war.

A month ago, I was cautiously optimistic that a trade deal with China would be signed, but clearly that was wishful thinking, due to the many complexities surrounding a deal.

That’s because a deal is about much more than the massive trade imbalance: the protection of intellectual property, forced technology transfers to Chinese markets, and the way China subsidizes many state-owned companies.

To say a deal was possible, given that it has been less than a year since the tariffs began, was clearly a dream.

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The thing is, the trade rift could extend for quite a while, especially after the U.S. placed restrictions on the sale of key U.S. hardware and software to Huawei Technologies Co. Ltd. that could devastate the maker of “5G” technologies. Now there is speculation that the U.S. may restrict the sale of other technologies to a broad range of Chinese companies.

The current stock market risk is high, especially in the technology sector, which will be harmed if the technology bans are expanded to more Chinese companies.

As an investor, it may be time to take a step back and see how the trade situation unfolds.

The stock market currently has a downward bias, with investor sentiment neutral but threatening to turn bearish.

The Nasdaq, Dow Jones, S&P 500, and Russell 2000 have all broken back below their respective 50-day moving averages. And while it’s not yet time to run, the Dow broke below its 200-day moving average on fears that many U.S. multinationals will be hurt by the trade.

Chart courtesy of StockCharts.com

Technology stocks are digressing because of the new battle that could surface against China’s tech sector.

Keep an eye on the Nasdaq, which could soon retest support at its 200-day moving average.

Chart courtesy of StockCharts.com

The scale of the selling in May is the worst it has been since the major declines in October and December 2018.

Where the stock market goes from here will likely be determined over the next month or so leading up to the planned meeting between U.S. President Donald Trump and Chinese President Xi Jinping in late June.

Failure to renew the talks in the next few weeks could be a signal that things could worsen.

Analyst Take

As I said earlier, it may be time for investors to sit back and see how the situation evolves.

My view is that major selling in the stock market means opportunities to pick up cheaper stocks, as was the case in December before the subsequent rally.

Chaos often breeds opportunities in the stock market for traders who have a long-term view. Nothing stays down forever, but you should proceed with caution.