China blinked, and the bulls are running

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This post is for education purposes only and should not be interpreted as a trade recommendation.

China blinked, and the bulls are running.

Late last night, Xi Jinping said he will open the country’s economy, cut tariffs and protect the intellectual property of foreign companies. The surprising announcement was important on many levels. First, it was a clear victory for the White House’s go-tough approach to economic negotiations. Second, it seems to mark an end to open bickering between the world’s two largest economies…  a huge relief for investors shell-shocked by tit-for-tat tough talk over tariffs and trade.

Third, the market’s singling out some obvious short-term winners. Let’s take a look at those now, with the help of RadarScreen®:

Energy is the first and obvious winner. Oil’s viewed as a proxy for economic growth and trade. In addition to being classic “risk-on” assets, energy stocks stand to benefit directly from increased trade with China. After all, if there’s a single product they’re going to buy more of, this is it. China’s shifting away from coal and looking to import liquefied natural gas at the very same time the American heartland is cranking out record volumes.

High-beta oil servicers rose the most, led by the even higher beta deep-sea players like Transocean (RIG). Traders might want to also keep an eye on the natural-gas export names, of which Cheniere Energy (LNG) and Golar LNG (GLNG) are the more liquid names. Within the S&P 500, natural-gas driller Range Resources (RRC) and energy servicer Baker Hughes (BHGE) are some of the morning’s top gainers.

RadarScreen showing winners from China news
RadarScreen® showing winners from China news

Blue-chip industrials like Caterpillar (CAT) and Boeing (BA), which stand to benefit from sales in China, are also viewed as big winners. That’s making the Dow Jones Industrial Average the top major index so far in the session. Traders might want to keep an eye on Deere (DE) as well. (Remember the tractor maker was the target of bullish call activity in late March.)

Semiconductors, recently considered vulnerable to Chinese tariffs because of their hefty sales to the country, are the other major group that seems to be benefiting so far. Two companies this industry, Micron (MU) and Lam Research (LRCX), remain near potential support at their 50-day moving averages.

Bottom line: Investors have been stuck in a negativity rut for the last two months, but today’s news from across the Pacific may help reverse that sentiment.

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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.