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Last week was fairly slow in terms of economic events, so trade discussions between the United States and China took center-stage again. Every time it looks like the two countries are ready to resolve their trade disputes, the market seems to rally, and that’s exactly what happened last Wednesday.
However, it was announced yesterday that the U.S. will impose 10% tariffs on $200 billion worth of imports from China, and those tariffs will rise to 25% on the first of the new year. The U.S. also threatened to implement another phase of tariffs on an additional $267 billion worth of imports if China retaliates.
With the midterm elections coming up in the U.S. in November, I think the politically advantageous thing to do would be for President Trump to try to resolve some of the trade issues. While I do think it would be possible to come to a deal with Canada, it’s looking more and more unlikely that the U.S. will settle with China on trade anytime soon.
Looking at the performance of U.S. versus Chinese stocks, it’s quite clear that the U.S. is winning the trade war in this respect. While U.S. markets have recovered most or all of their losses since the selloff at the start of the year, Chinese markets have only continued to move lower, creating a large divergence.
U.S. stocks were hit hard ahead of the tariff news yesterday, with the S&P 500 and Nasdaq down 0.6% and 1.4%, respectively. However, I think the reaction was a bit overdone, especially in the company I’m trading today.
Shares of Beacon Roofing Supply, Inc. (NASDAQ:BECN) fell 2% during Monday’s session, but the stock has been making a series of higher lows since August, and I’m expecting a further rebound into mid-October. With that in mind, I’m recommending a bullish trade on the stock today.
Sell to open the BECN Oct. 19th $35 put at about $0.50.
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Ken Trester is editor of the popular Maximum Options program. 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.