The world has been turned on its head, at least temporarily, as Donald Trump tries to level the playing field of international trade.
Which he believes is highly skewed against the USA (it maybe).
However, he is conveniently ignoring the fact that globalisation and offshoring, which have led to the large trade imbalances, between the US and other countries, were largely a US invention.
We could spend ages debating the history and root causes of the current situation, but it would probably be better to spend that time assessing how the tariff shockwave has left the markets, trader and investor sentiment and future prospects. In terms of global trade, and trading opportunities in the financial markets.
Firstly though I just want to point out that there has been a degree of continuity, despite all the turmoil.
For example, take the chart below, which is of EDP PL the Portuguese Electric Utility.
Not the most existing stock you might think? However appearances can be deceiving.
I highlighted the opportunity in EDP to a client on March 3rd saying:
"Portugal gets upgraded at S&P, and we have some bullish momentum noises coming out of EDP, which is basically most of the PSI 20 index, I believe".
Here is the chart that accompanied that post, I have highlighted what excited me about it.
Source: Barchart.com
One month on, and they, EDP PL are up by just over +10.00%, as you can see in the chart below ,which also contains an alert in EDP, which are making new 5-day highs as I type.
Source: Barchart.com
However, this isn't meant to be an exercise in bolstering my ego - Quite the reverse - As there is no place for your ego in trading.
Instead I wanted to show you that a process that began a month ago can endure, even in the midst of the biggest upheaval in the markets since the pandemic.
The first thing to say is dont panic!
Market corrections are healthy and to be expected. And to be fair this one hasn't exactly come out of the blue.
On that basis alone I would like to think that many of you will have scaled back your risk, with fewer and smaller positions, and perhaps a tighter stop loss than normal; if you use them
Those that didn’t do that will have learnt a valuable if expensive lesson about risk management, and the necessity of adapting your trading style and exposure to reflect the current market conditions.
This dislocation also given us a timely reminder that markets can go down as well as up.
Here is Apple AAPL US one of the world's largest companies and one that imports hufe volumes of components and finished products from China. Which could now be subject to tariffs of +54.0%.
In hindsight a perfect shorting opportunity- APPL fell by as much as -7.0% in the after-market on Wednesday evening.
Source: Barchart.com
But did it have to be in hindsight?
Here is a AAPL chart I shared on Discord back on January 8th along with the comment:
“On AAPL and hence the market”
You don’t have to be a rocket scientist to tell where the path of least resistance lay in the Apple share price at this point.
Source: Barchart.com
And, didn't we get another major clue about where Apple’s share price might be heading last year??
From Yahoo Finance 18 November 2024:
Oh, and here is a chart of AAPL that I shared on November 4th .... US election day rather ironically ......
Source: Barchart.com
There is no doubt that we have a significant dislocation and it’s going take some time for markets to find a new equilibrium, and that’s all we can hope for.
Things are not going to go back to how they were before.
Even if in a couple of months time, reduced tariffs have been negotiated by nations offering concessions to the US on trade.
Trust has been destroyed and the true colours of the Trump administration have been revealed.
Though once again perhaps we, in the rest of the world, shouldn't have been in any doubt about what they were.
After all, DonaldTrump campaigned on the platform of “America First”.
It’s just that we expected the pre-election rhetoric to exceed the policy goals, but instead the reverse has proved to be true.
Here’s the thing when the market has had its headless chicken moment we can make a proper assessment.
And inevitably, once things calm down, we will be able to find opportunities in stocks that have been oversold, and those that remain artificially high. And others, that need to play catch up on any bounce.
Meanwhile have faith in your system, unless its long only meme and high momentum stock trading.
In which case its back to drawing board for you, I suspect.
Keep a look out for set ups like that seen in BME LN last week, which is playing out very well this morning.
Source: Barchart.com
You will get through this if you are sensible and think about what you do.