Be Ready to Sell It All or ‘Buy, Buy, Buy’ Amid Trade-War Chaos

(Bloomberg) -- The complicated trade negotiations between the U.S. and China and broad range of possible outcomes threaten to bewilder investors, but there are a few key headlines to watch for, according to Peter Tchir, the head of macro strategy at Academy Securities.

He says traders should be careful of an announcement that outlines a basic deal, which will quickly send stocks higher before the rally reverses.

“Everyone wants to ‘sell the news’ of a trade deal,” Tchir said in a note to clients Sunday. “Even my mother is ready to fade any trade deal bounce.”

The S&P 500 Index rose 0.7 percent to 2,812 on Monday, boosted in part by reports that the U.S. and China are closer to some sort of trade agreement. Stocks in China surged the most since 2015 as trade headlines coincided with signs that Beijing will do more to support economic growth.

Be Ready to Sell It All or ‘Buy, Buy, Buy’ Amid Trade-War Chaos

Here are five potential developments and recommendations for investors:

U.S.-China Talks Break Down:

  • “Sell stocks and credit hand over fist,” Tchir recommends
  • The S&P 500 Index is headed back to 2,400
  • Credit spreads will widen

An Accord Is Reached With a Fairly Detailed Outline:

  • Expect a near-term pop in markets
  • Gains may not last a whole day before selling pressure follows suit

Deal Made and Tariffs Implemented in 2018 Are Scrapped:

  • Investors should take a bullish stance
  • “Will signal the sincerity of the deal and should do a lot to reduce the ‘sell the news’ effect,” Tchir says

U.S. Ends Steel Tariffs With Mexico and Canada:

  • “Buy, Buy, Buy!” Tchir says
  • “Would be a clear sign that the administration has changed its views on trade”
  • “Could usher in a new era of reduced tariffs and barriers to trade”
  • S&P 500 could climb to 3,000 under best-case scenario

U.S. Heats up Rhetoric on Auto Tariffs With Europe and Japan:

  • “Sell, Sell, Sell!” Tchir says
  • “If it is viewed as a clear signal that we won’t follow through with China” the S&P 500 Index could fall past 2,400
  • “Trading one trade war for another won’t help”

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