I’m Expanding My Tariff Play With This Name

I can’t remember a time when markets were this exciting.

Of course, excitement isn’t always a good thing when it comes to trading and investing. 2008 wasn’t boring, but it was a terrible time to be an investor. Right now, this is a market better suited for traders. 

4-D Chess, or a Matter of Necessity?

Some are hailing Trump’s 90-day freeze on tariffs as a 4-D chess move. That may or may not be the case, but prior to the freeze, rumors were flying that bond markets were in serious trouble.

Treasury yields soared earlier this week. When Treasury yields are rising sharply, Treasury prices are falling quickly. It might have been a sovereign seller, or it may have been a distressed hedge fund. 

Either way, this episode demonstrates the danger of massive debt. It puts you at the mercy of your debtors. 

The potential unwinding of a big bond trade may have influenced the timing of Wednesday’s tariff freeze. Keep an eye on Treasury yields in the coming days, as this threat may resurface. 

Battle Lines Are Drawn

One positive angle is that by freezing the tariffs, the battle lines in this trade war have already been drawn. Now the key for the U.S. is to lock down deals quickly, placing allies firmly in their camp. The more deals that are reached, the more isolated China becomes.

Japan Is the Key

I still believe Japan will be a big winner. That country has obtained priority status in trade talks with the U.S., as indicated here. On Tuesday, the iShares Japan Index Fund EWJ leapt higher by 7.61%.

EWJ still has room to run before it encounters its 50-day (blue) and 200-day (red) moving averages, both located just below $69. On Wednesday, the large-cap focused ETF more than doubled its average turnover. The next major resistance level for EWJ is $72 (black dotted line). 

South Korea Now in Play

In addition to EWJ, I’m also adding the iShares MSCI South Korea ETF EWY as a tariff play. EWY soared 8.91% on Wednesday, but is still well off its highs. EWY’s next major resistance point is $57.50, the upper boundary of a recent double top (shaded yellow). 

Now that China is backed into a corner, the world’s biggest exporter could attempt to form a trade coalition against the U.S. Are other countries willing to risk losing market share in the U.S., as a result of teaming up with China? We’ll soon find out.

Meanwhile, Taiwan and Indonesia, along with Japan and South Korea, will attempt to fill the gaps left by China. Japan and South Korea in particular have a golden opportunity to grab a larger share of exports to the U.S. if they can quickly come to terms.

At the time of publication, Ponsi was long EWJ and EWY.