The Impact of a Potential Trade War on Transportation
The markets wait for what could happen in a potential trade war. If the government’s proposed tariffs go ahead, transports could take a hit.
TradeZero Ocean Place Cable Beach, Unit #1 Nassau, Bahamas
One of the most important aspects of stock trading is the ongoing trading education. There’s a lot you need to learn as you carry on trading, one of which is anticipating what could happen when something as catastrophic as a trade war strikes. The Transportation Bull Market Could Get a Hit With the specter of a trade war looming over the economy, it becomes really important to plan for retaliatory attacks from China, now that the US government has reversed its stance and gone further with imposing tariffs on goods imported from China. It led to the Dow Jones Transportation Average reversing at four-month resistance. Indeed, the transportation sector looks set to be the most affected as a result of the potential disruptions in the supply chain caused by these tariffs. There is rising anxiety here. Investopedia analyst Alan Farley believes that this could ultimately bring the bull market in the transportation sector to an end. There is also the threat of the 25% tariffs on automobiles imported from China. The failure of NAFTA talks could bring about a later reaction. Now if the US government is actually employing negotiating tactics through these moves, for facilitating compromise and www.tradezero.co
+1.954.944.3885
agreement, then transportation could turn higher. But if it’s the opposite that’s happening, you could find the top sector components dropping 15% to 25% in just a few sessions, believes Farley. This would bring about aggressive profits for short sellers. This decline would also bring those February lows into effect and lead to a downtrend possibly lasting for months or more. Trucking and Railroad Companies for Short Selling Farley suggests trucking and railroad companies as short selling candidates since these companies are at the grassroots level in the globalization battle, transporting and benefiting from imported goods. Farley also believes packaging companies and airlines could be hit. That would happen if a full trade war does break out between the United States and China, since you can expect the volume of products and people going to and fro to thin down significantly. Observations from a Transportation ETF On observing the iShares Dow Jones Transportation Average Fund
ETF
www.tradezero.co
($IYT)
from
the
following
chart
by
+1.954.944.3885
TradingView.com on Investopedia, you realize that it topped out in 2014 at $168 following an uptrend lasting for multiple years.
It sold off when it reached a two-year low in January, 2016, at $115. The presidential election caused the ETF to slip into a shallow ascending channel, eventually breaking to the upside in December 2017. The ETF posted a $206.73 all-time high only six weeks later, before selling off. It bounced at range, with its 200-day EMA (exponential moving average) support being close to $180.
www.tradezero.co
+1.954.944.3885
There were two further tests at support which resulted in willing buyers. The three rallies could not pierce the horizontal resistance beyond $195. On Tuesday, May 29 the ETF reversed for the fourth time at that level following a 7-day test. That exposed yet another sell-off to the range support. Since the middle of April, the OBV (on-balance volume) has weakened. That indicates that the buyers are shrinking. A breakdown has been exposed that could get to the $160s. These observations could help you make some informed decisions on your trading strategy. It certainly helps to be prepared for the worst that could happen, even if that may not ultimately happen.
www.tradezero.co
+1.954.944.3885