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That U.S. markets are outperforming most other world markets tells me that the U.S. is still winning the trade war. It seems as though China is determined to just keep plodding along as it has been for so many years and not give in at all, and that’s been one of the factors behind the drop in Chinese stocks lately.
It’s also been one of the reasons for the dramatic decline in the value of the Chinese yuan versus the U.S. dollar and that’s going to lead to inflation and eventually a lot of problems for the country.
Elsewhere on the trade front, the U.S. has still not settled the situation with Canada, which is its biggest trading partner. It’s been reported that negotiations regarding the North American Free Trade Agreement (NAFTA) are still in progress, but no deal has been reached yet.
If the two countries cannot come to an agreement, the U.S. could strike a bilateral trade deal with Mexico and leave Canada out of it. It’s hard to say what that would look like right now, but it would most likely be a negative for the market.
On the positive side, the underlying U.S. economy really is performing well right now, which is one of the reasons why U.S. markets are attracting so much capital. However, the one thing that traders dislike more than anything else is uncertainty in the marketplace.
While they don’t seem too concerned right now, even with the recent selloff, the price action in emerging markets and more developed nations such as China is eventually going to start to spill over into the U.S., and any breakdowns in trade negotiations could accelerate that process.
With that in mind, I’m recommending a bearish trade on AutoNation, Inc. (NYSE:AN) today as a way for traders to protect their portfolios from a potential tariff-related selloff.
Buy to open the AutoNation, Inc. (AN) Oct 40 Puts (AN181019P00040000) at $0.45 or lower.
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InvestorPlace advisor Ken Trester brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.