The IBB Breakout And The S&P 500 Turn

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Includes: GLD, IBB, SPY
by: Mott Capital Management

Summary

Following the weak German ZEW report on Wednesday, today came the U.K. Markit Flash PMI.

The rising wedge formation coupled with a clear resistance level would be indicative of this.

On Wednesday I noted that IBB broke out, and it did. I got questioned to some degree.

Top News

Following the weak German ZEW report on Wednesday, today came the U.K. Markit Flash PMI. The PMI reading was 47.7 in July vs. June's 52.4, the lowest reading in U.K. PMI since April 2009. This was in contrast to the Euro-Zone's Composite PMI of 52.9 vs. June's 53.1, the lowest level in a year and a half. Clearly, the economic picture is deteriorating across Europe. However, the U.K. seems to be deteriorating at much faster pace.

Equity Market

The S&P 500 and SPDR S&P 500 Trust ETF (NYSEARCA:SPY) fell yesterday and are trading flat this morning. Currently, the S&P is up a little over 1 point to 2166.

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We just continue to hang around this 2165-2170 level with no significant push higher. Short-term I still believe the market is heading for some a pull-back, the 2120-2125 would be a resting place. The rising wedge formation coupled with a clear resistance level would be indicative of this.

Sector Spotlight

On Wednesday I noted that the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) broke out, and it did. I got questioned to some degree. Disagreement is always good; it is what makes a market in my opinion. Everyone is entitled to see what they want. Technicals are all about what you see and how your interpretation. Viewing the weekly chart below it is evident the IBB was in the midst of a bear market for the past year. On Wednesday there were signs that perhaps that was changing. In my opinion, the IBB broke out on Wednesday. Click to enlarge

The chart above references the IBB on a weekly chart going all the way back to January of 2013. You can clearly see the red downtrend line I drew in from the top tracing it along various tops along the way. You can also see the white line I have traced out along the 240. level.

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Above is a closer view, a daily chart. You can see the double top formation around the 284 level as well. Could you argue that we need to break through 284, yes? But then you can also see the retest of the 240 region, creating a reversal triple bottom Below, the hourly chart of the IBB.

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Look at how the it struggle so badly to get above the red line for the days prior to the pop on Wednesday. In my opinion a down trend line lasting for nearly a year is more significant than a moving average or the topping formation over the past 2 months. Add in the triple bottom reversal pattern and you have a break-out

Again, when it comes to technicals everyone can have a different point of view. After all, it is like reading tea leaves and is all in the eye of the beholder.

Currencies

Today, we will focus on the British Pound, falling 120 to 1.31 vs. the U.S. Dollar. Clearly, a weakening economy will not be supportive of a strengthening GBP. We can see from looking at the chart below the run from the 1.27 to 1.35 seems to have been just dead cat bounce.

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Commodities

Today Gold or the SPDR Gold Trust ETF (NYSEARCA:GLD) is trading lower by about 10 to $1320. As we talked about the other day, my belief is that sentiment has begun to shift in the market to a more risk-on environment. If that is the case, I can't see GOLD continuing its previous run higher. Again, I had noted last week I thought Gold could return that 1250 area gap that was created post-Brexit.

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Yield

The Ten-year is relatively flat once again, still hovering around that 1.60%. It has been a fairly quick week in the 10-year. However, with a Fed meeting next week, I don't expect it to stay quiet for long.

Election 2016

The RNC wrapped up last night with Donald Trump formal accepting the parties nomination for president. Next week it will the Democrats turn. Things will begin to heat up politically once that is complete. The RealClearPolitics Average still stands with Clinton leading Trump 44 to 41.3 or 2.7%. In my opinion, that is a statistical tie. The next few months will be exciting.

Apologies for not getting a commentary out yesterday. It was one of those days where you feel busy but don't get much accomplished.

Have a great weekend.

- Mike Kramer

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.