Donald Trump’s victory this week gave the market a boost…
The S&P 500 gapped higher, making another all-time high. And after a sluggish few months, the Nasdaq finally took out its July 10 high.
Even the Dow Jones got caught up in all the excitement. It jumped on the open and rallied all day, closing out over 1500 points higher than the previous close.
When markets burst higher like this, it can be tempting to blindly jump in. The fear of missing out (FOMO) can feel too strong to resist.
But once the hype all dies down, you may regret overexuberant stock purchases.
Today, I want to look past all the hype and noise at two charts that will feel the impact of an incoming Trump presidency.
So let’s dig in…
A Case for Oil
One of the hallmarks of Trump’s presidency the first time around was his desire for U.S. energy self-sufficiency.
That is likely to play out again.
Many have been piling into oil and gas stocks since his win. But there’s reason to be wary.
I’m still not convinced about the underlying strength of the economy.
The unemployment rate has remained steady over the last couple of months. Yet last month’s nonfarm payrolls (NFPs) report was its lowest reading in almost four years.
Plus, there’s still around 2.5 months before Trump’s inauguration. And it’ll take time after that before his policies kick in.
So if the economy falters, the price of oil might be vulnerable to a pullback.
Another way to play this sector is through the VanEck Oil Services ETF (OIH). OIH invests in companies that support the oil and gas sector. So it’s less vulnerable to daily oil price movements.
You can already see the boost OIH got after Trump’s victory. This jump is the type of scenario that can pull investors into a trade too early…
VanEck Oil Services ETF (OIH)
Source: e-Signal
The Relative Strength Index (RSI) in the bottom part of the chart shows that this surge has put OIH on the cusp of overbought territory (upper gray dashed line).
Those who buy in around these levels could get caught in a pullback.
So be patient and wait for the initial surge to peter out.
And then wait for OIH to develop a strong base (such as making a higher low).
We’d then look to buy into any emerging strength off that level along with rising momentum.
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Don’t Forget China
The other chart I’m watching is the iShares China Large-Cap ETF (FXI). As the name implies, it invests in large-cap Chinese stocks.
Up until early this year, FXI had been in the doldrums. From its peak in February 2021 to January this year, it dropped around 62%.
FXI rallied strongly from April through May, though, with some big intervention from the Chinese government.
That rally soon fizzled out, though, with FXI rolling over and drifting lower.
Then FXI surged again in September, as the government lowered interest rates and plied the market with another big round of stimulus.
Take a look:
iShares China Large-Cap ETF (FXI)
Source: e-Signal
That spike put the RSI a long way into overbought territory…
After retracing, FXI has been trading in a narrow sideways range. It has been building a support level along the orange line at around $31.50.
That pattern has coincided with the RSI testing and holding support (green line).
Right now, the markets in the U.S. and China are trying to process what trade tariffs will mean for both countries.
And the implications of a potential trade war…
So FXI is delicately poised in anticipation of a move.
If FXI breaks below support and the RSI drops into its lower band, that could trigger selling and provide the setup for a potential short trade.
I’ll be watching both charts closely until the end of the year as I scope out potential trades.
You might want to put them on your watchlist too…
Regards,
Larry Benedict
Editor, Trading With Larry Benedict