There goes the market.

At the moment, the Dow Jones Industrial Average (DJIA) is down 712 points.  The NASDAQ is down 284. The S&P 500 has fallen 79.

Technically, after failing at major triple top resistance, the Dow Jones Industrial Average pulled back, and broke well below its 50-day and 200-day moving averages.  If it were to break double bottom support dating back to March 2019, the index could break to 24,500 support and potentially 23,500 support as it did in early 2018.

All as trade war fears intensify.

China has Defied Trump’s Tariff Demands

Trump warned China, tweeting, “I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries. Too expensive to buy in China. You had a great deal, almost completed, & you backed out!”

However, it would appear China didn’t take that threat seriously.

In fact, China announced plans to add new levies to $60 billion of U.S. goods shortly after.  China said it plans to set import tariffs ranging from 5% to 25% on 5,140 U.S. products on a revised $60 billion target list. It said the tariffs will take effect on June 1.

In addition, China could stop buying agricultural products and energy, reduce Boeing orders and restrict U.S. service trade with China.  Others in China may even begin dumping U.S. Treasuries. In short, this could get ugly.

Some in China could even sell the country’s stockpile of Treasuries to retaliate, as well.

“If China ran down its more than $1.1 trillion of Treasury holdings, investors would perceive the maneuver as a sign that Beijing remained unwilling to back down to U.S. demands, and that an eventual resolution to a trade clash stood far away,” says MarketWatch.

The move follows the U.S. decision to raise duties on $200 billion in Chinese products to 25% from 10% — threatening to damage the global economy.  But this may only be the start. The U.S. may retaliate even more with 25% tariffs on $325 billion in Chinese goods that remain untaxed.

Investors are Greatly Concerned

“Investors are increasingly worried an anticipated second-half profit rebound may now evaporate as President Trump’s threat to tariff the remaining $325 billion in Chinese imports would disproportionately target consumer products like iPhones, thereby posing a greater threat to the consumption-driven U.S. economy,” wrote Alec Young, managing director of global markets research at FTSE Russell, as quoted by MarketWatch.

“On the heels of 2019’s historic rally, valuations are no longer depressed, making it harder for equities to shrug off looming macro risks,” he added. “With the ultimate trade outcome inherently uncertain and difficult to model or predict, investors are selling first and asking questions later. More globally exposed, cyclical industries like technology and industrials are proving most vulnerable.”

As a result of increased tensions, investors have been turning to volatility-based trades, including these as a way to profit from the intense fear.

  • iPath S&P 500 VIX Short-Term Futures (VXX)
  • ProShares Ultra VIX Short-Term Futures (UVXY)
  • VelocityShares Daily 2x VIX Short-Term ETN (TVIX)