Stocks

Vietnam and the U.S. Widening Trade Deficit

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The U.S. trade deficit widened to a 6-month high and by the most in 8 years. That means that we imported way more goods while our exports declined.

Now, we don’t like to use one economic stat as the end all be all, but this does indeed strengthen our stagflation outlook. The Dollar’s recent strength is a factor as well. Looking ahead, the west coast port labor potential strike could hurt both imports and exports in the coming months.

Meanwhile, the chart shows us another interesting trend, one that we have dubbed as the “sleeper trade” for 2023 and beyond. Since we in the U.S. have rising imports, these charts illustrate where we (and other countries) are going for cheap labor and goods. And it is not just to China.

Note the declining dependence on China and the rising dependence on Vietnam for imports.

This is a weekly chart using the ETF VNM for Vietnam.

About the ETF

VNM extends beyond firms domiciled in Vietnam to include non-local companies generating at least 50% of revenues in Vietnam. In doing so, VNM adds exposure to different sectors via companies in other regions. It’s a broad take on the Vietnamese market for those seeking a pure-play fund.

Finance is the top sector in the ETF basket at 51.95%, followed by Consumer Non-Durables at 16.62%. The blue line is the 23-week moving average. Should that clear and confirm by the end of this week, that is a phase change to Recuperation. The last time VNM traded at these levels was the week of January 23rd when the high was 13.17. Should the price hold the phase change and take out the 2023 highs, we will consider that a more bullish sign.

Our Real Motion Indicator tells us that momentum has also cleared its 50-week moving average. Price and momentum are moving in tandem. Nothing pleases us more than when fundamentals and technicals line up.

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Mish explains how reversal patterns could come to the fore this week in this appearance on CMC Markets.

Mish joins Rajeev Suri of Orios Venture partners to discuss the possibility of economic stagflation in this video on LinkedIn.

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ETF Summary

S&P 500 (SPY): August 2022 high 431.73, and of course 420 now key.Russell 2000 (IWM): 180 now must hold while still miles from its 23-month MA 193.Dow (DIA): 23-month MA 337 pivotal and closed right there.Nasdaq (QQQ): Big correction as Canada hikes rates; also somewhat saturated index. 350 pivotal with the close below.Regional Banks (KRE): 45.50 significant resistance.Semiconductors (SMH): 142.50 the 10-DMA; if breaks, still looking at 138-140.Transportation (IYT): 233.50 is significant resistance.Biotechnology (IBB): 121-135 range.Retail (XRT): 60 now support and 63 resistance.

Mish Schneider

MarketGauge.com

Director of Trading Research and Education