Market Hates Trade Wars – Here’s How To Trade This Drop

June 18, 2018
Author: Peter Stolcers, Founder of OneOption

Posted 9:30 AM ET - Last week the market showed incredible resilience as it fended off negative news. That is a bullish sign and I only want to trade from the long side. Potential trade wars and higher interest rates are sparking a light round of profit-taking. Once support is established a buying opportunity will present itself. Trump imposed tariffs on most of our trading partners and they are retaliating. China took immediate action and this "tit-for-tat" battle could escalate. At current levels, tariffs won't have a major impact on commerce or the market. I believe that Trump feels he needed to demonstrate that he is prepared to follow through on his threats. This is part of his strategy. Last week the FOMC statement was hawkish. Interest rates increased .25% and the majority of Fed Officials favor four rate hikes next year. Inflation is moderate and this stance is aggressive. The market was able to shoulder this news and it demonstrates that the bid is strong. Earnings were excellent and guidance was strong in Q1. Forward P/Es are reasonable at 16 times earnings. Economic data points have been solid. Swing traders need to wait for support. Don't short this pullback. A violent snapback rally is possible at any time. The closer we get to the 100-day moving average, the more anxious I will be to buy stocks. Get ready to buy this dip. We might jump into action this week. I won't know until I can gauge the selling pressure. Day traders need to go with the flow. Use the first hour range as your guide. If the market makes a new low after two hours of trading favor the short side. Bullish speculators will be flushed out and we could see a buyers boycott. That would result in an air-pocket (light volume drop). If the market establishes an early low and it starts to grind higher you can favor the long side. I believe that buyers have the upper hand and that any drop will only last a few days. The political winds are swirling and it's impossible to tell if the trade war rhetoric will escalate. When these winds settle down the market will shoot higher. Be patient and get ready to buy. . . image

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