USA/China trade - China pushing currency lower!
Dear Members,
It has been getting clearer that China is not getting away without paying the price this time, and what the US administration and Trump are doing will be great for the US in the medium to longer term. Surely, there will be some pain in the short term. Right, left, and center China has been stealing the intellectual property of the US. This whole situation started with Huawei, one of the key Chinese tech rich companies, that is trying to take the lead in the technology world, especially in the 5G segment. The US has taken enough steps, and decided not to supply any chips to Huawei, which will corner the company. Last week Huawei officials said that they have enough chips to keep them going for three months, but what happens after that?
In the last three and a half weeks US semiconductor stocks collapsed. Many chip makers also collapsed due to the trade war, but they can take this beating and come back, rather than have their key technologies be stolen by other nations, especially China.
There is no doubt that the equity market will have a tough time in the coming days, weeks, or months if the trade war accelerates; but I still hold my prediction that China will be 80% loser, and the US 20%. Of course everyone wants there to be a fair deal, and that is what the US is asking for. The world knows that US companies spend fortunes on R&D, and gave birth to all major technology innovations, in tech, biotech, and all other areas. So, they have all the rights to protect their innovations, and ask for a price from other nations, rather than allowing them to steal their intellectual property.
My vote is 100% in favor of the US on this trade war, and if the US market does not get affected by this trade war, then expect the S&P to not only go towards 3200, but to 3800, and ever 4000. I am just worried about the current astro transit which will keep bringing some volatility as mentioned in the book. The month of July will be an especially crucial one for the market. Either the bear will break the door where the bull are protected, and create havoc in the market. If the market sails through very smoothly till the second week of August, then no power on this earth can stop this market from going higher.
The Chinese market has been suffering, and expect more pain. They may try to devalue the Yuan, or they may allow the Yuan to have a free fall to offset losses for exporters, or to give them an edge in pricing.
China has been storing many raw materials, and lately we have witnessed that it is holding a large amount of iron ore, and creating a short supply. We may witness major volatility in many things due to the trade war situation, and any further devaluing in the Yuan may push gold sharply higher, but at this stage Gold’s astro cycle is not as positive as what is coming in July 2019.
On the other hand Dollar is getting stronger against all the major currencies, and now it is at the most crucial level, where it will either drop sharply lower, or move higher, especially in the month of July. Expect June to remain a sideways month in the currency market.
Most of the commodities are struggling, and many are trading around decade lows. China may start acquiring these commodities ahead of the trade war situation, so remain aware of this.
This Monday is a Scorpio Moon, so remain on the sidelines, and sell the market on any sharp rise. Stay away from any commodity and currency trading. I will recommend finishing pending work, rather than getting involved in short term trading.
A major catalyst is coming in India, as the election results will come out. This election is considered one of the most expensive ones, and it cost India 7 Billion dollars; and Modi is looking for a victory, which does not look like it will come too easily. In 2014 when Modi wanted to win the election the issue was corruption, black money, and inflation. This election all these issues disappeared completely, and this election Modi’s agenda is Hindutva, Religion, and presenting himself as the only Messiah who can save India, but he is forgetting that the economy is the most powerful agenda that all parties should have, as India is struggling with joblessness; farmers are facing a tough time; the lives of those in poverty are getting worse; and inflation is still on the rise. So, if you analyze the last five years, you will see that he has been failure on the economic grounds, but he presented his image very well in India as well as internationally. INDL has performed very well last week, but booking profit on the higher side won’t do any harm.
IMPORTANT NOTE:
At this stage we are at the most crucial level of our lifetime, as the market will either break down completely, or the US will start a new era, and the US equity market will keep moving higher, and US company valuation will keep getting stronger. Last week Jim Cramer put it very nicely, ‘Whichever company China did not allow to do business in their country, they kept moving higher.’ China needs to understand that there is a world beyond China, so they should be opening their borders rather than closing them, and trying to do everything by themselves. This is why democracy has more value than communism.
I am just a seer, and my job is to predict the future, but I always analyze the past and present. Let’s not talk about the future coming time for each area of the financial market in the sections below.
This week’s Newsletter from 20th May to 24th May 2019:
INDEXES
Last week the equity market recovered from the lows, and tested 2890 on the higher side. On the lower side it still held 2845, which is good news for traders. This week it must hold 2845, otherwise some uncertainty may arrive in the market if it starts trading below 2845. Last week Nasdaq underperformed on Friday due to a fall in semiconductor stocks. Many of our favorite semiconductor stocks are falling very hard due to the trade war situation as the US government has instructed these companies not the supply chips to Chinese companies, especially Huawei.
The US is currently supplying the highest amount of chips to China, more so than anything else, so surely the trade war is putting some pressure on US semiconductor stocks. You must have noticed that in the last three and half weeks the Semiconductor index fell around 30%. Many great stocks are falling very hard, but you should watch these stocks closely, as once China comes to the table with a deal, these stocks will be the ones that benefit the most. We should keep cash ready to buy these stocks, and they are AVGO, MU, INTL, QCOM, SKWS, KEYS, & XLNX, among many others. On the day of the trade deal we should aggressively buy the semiconductor ETF. Assuming the trade deal takes place by the end of June, then S&P can rise to 3200, and NASDAQ can hit 10,000. The US will get what they want.
This Monday is a Scorpio Moon, so I won’t recommend any day trading, or new investments in the market. Tuesday will be the best day to buy positions on the lower side, and we will be very happy if the market closes in the green on Tuesday, as that will be the most important indicator for the bulls.
On Wednesday the markets will trade mixed or on both sides once again.
Thursday and Friday could be the most volatile days, as the moon will be transiting through the house of Capricorn, so either expect a 70 point rally or fall in the S&P. If the market closes in the positive on Thursday and Friday then expect a mega rally by the end of June.
On the higher side 2890 and on the lower side 2802/2778 are the crucial astro levels....
Thanks and God Bless
Mahendra Sharma