Now that China has announced trade tariffs on 106 additional U.S. products, it is looking as though a full-on trade war is quickly approaching.
For investors, this begs many significant questions – and it is important to determine which asset classes can succeed in this type of environment (and which are likely to fail). Given the strength of stock price recent trends, energy markets are starting to look particularly attractive. The best way of playing these trends is to use the United States Oil Fund ETF (USO), as it offers a stable cross-section within the commodities space.
Exchange-traded funds can make it very easy for investors to gain access to an industry or sector. There are similar instruments for both gold and the U.S. dollar, and these ETFs can actually have a strong impact on the way crude oil markets and USO are trading on the charts.
Currently, the USO ETF is dealing with double top resistance in the area of $67 per barrel. This is an area that could face additional selling pressure upon first approach, as we have seen similar pattern formations in gold and other commodities. We have been trading in this region for a while now, and so any break from here would mark a significant change in the broader market.
Another factor is the value of the U.S. dollar, which can be traded using the PowerShares DB Dollar Index Bullish ETF (UUP). The ETF is a financial trading instrument that has been trading sideways for more than 10 years, and the more recent activity suggests that we are ready to see further downside in assets denominated in U.S. dollars. Donald Trump has supported this economic outlook at U.S. president, and so it would not be entirely surprising to see this continue.
Individual stocks can also be traded, in order to express a positively view in energy. Dividend payers that have a long history of stable income payouts can be seen in companies like Chevron (CVX) and Exxon Mobil (XOM). Both company’s have proven themselves to be excellent dividend payers, even during times of economic weakness. Dividend stocks are important to hold during low-interest rate environments.
Rising trade tensions with Asia financial markets could create impasses for both commodities prices and crude oil markets. We are seeing tightening supply in a number of different areas, and it would not take much to push energy markets over a tipping point. Those long oil (and assets tied to the oil) industry stand to benefit if these analyst forecasts come to fruition.
The key areas to watch in USO can now be found at the price resistance zones near $67, and this is the areas that should unlock further gains to the topside once broken.