How to Profit off a Trade War Truce

Yesterday, we talked about an opportunity to go long on Alibaba (NYSE: BABA), the “Amazon of China”. And right after our newsletter went out, BABA shares soared on the news of a possible trade war resolution at the upcoming G-20 summit in Japan.

And though cooled trade tensions would certainly give the market a lift, Chinese companies like BABA could receive the largest benefit. Along with China’s other mega-corps.

For that reason, I wanted to take a look at the iShares FTSE/Xinhua China 25 Index Fund ETF (NYSE: FXI), an exchange traded fund that tracks 25 “blue chip” stocks in the Far East.

All of which could skyrocket in the event of a satisfying trade war conclusion.

In the weekly candlestick chart above, you can see that FXI, despite plunging a month and a half ago, is in position to rise yet again.

2019 was outstanding for FXI investors up until late April/early May, when President Trump announced a new round of tariffs on Chinese goods.

But just a few weeks later, sentiment flipped, and the market now seems much more optimistic about a trade war ceasefire – something that would hopefully be orchestrated at the G-20 summit, held in Osaka, Japan from June 28th to the 29th.

And even though we have no clue exactly how the summit could affect trade talks; investors seem to have already made up their minds on what will happen. The FXI is rising steadily, propped up on the hopes that Trump will cancel some (if not all) of the current tariffs.

For that reason, we could easily hop into FXI next week if it moves 0.50% above the current week’s high to $42.00, and then sell-off right before the first day of the summit (June 28th).

There’s plenty of evidence on the chart for a protracted uptrend, but for our purposes, all we really need is another green candlestick next week to capture some quick (and easy) profits. Based on what we’re seeing, that looks highly likely.

FXI just set a higher low in mid-May, right around where it made contact with the lower Bollinger Band. Stochastics are below 20, suggesting that FXI remains oversold despite its recent surge, and better yet, an “ascending broadening wedge” – a chart pattern where the upper and lower trendlines are moving away from one another – has formed.

There are plenty of technical analysts out there who trade on wedge formations alone, independent of other indicators, depending on them to set entry and exit points. It’s a matter of personal preference, but in general I don’t enjoy using them for that purpose.

All I really use them for is to set expectations of where a particular stock (or in this case, ETF) is headed. For FXI, it appears as though the next “higher high” could be somewhere around $48.00 – signaling to me that this trade has a ton of upwards potential.

That could all be ruined by a poor G-20 summit, though, so my strategy here is to simply close out the long position (if it hits my trade trigger) on the 27th. Should everything go well between Trump and Xi, it might be worth jumping back in the following Monday.

It’s going to be a wild ride to be sure as we get closer to the summit, but it’s an opportunity that adventurous traders can use to capture some rapid-fire gains over the next week.

So long as they have the stomach for it.


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