The IBB Continues To Rally!

| About: SPDR S&P (SPY)

Summary

Stimulus is taking the center stage again today, with news overnight that PM Abe announced a $265 billion plan to get the Japanese economy going again.

The S&P 500 or SPDR S&P 500 Trust (SPY) seems to be stuck in the mud.

Which is a potentially an excellent reason the IBB and Biotech sector have been better of late? Politics matter!

Top News

Stimulus is taking the center stage again today, with news overnight that PM Abe announced a $265 billion plan to get the Japanese economy going again. That was more than I had expected as I heard in previous weeks it would be closer to $100 billion. Whatever the case I think this is another step at trying to get an economy going that has been suffering for far too long. However, it has been my belief that Japan faces a demographic problem of an aging population and not an economic issue, that can be a discussion for another day.

Japan's GDP is somewhere in that $4.5 - $5 trillion camp, making this measure about 5% of GDP. Personally, I would have liked to see something closer to 10%.

If that isn't enough for you, we have an FOMC meeting concluding today. My expectation is that nothing happens. I continue to believe that the Fed will not raise interest rates this year. I still think it is more likely we see some form of monetary easing before we see a monetary tightening.

Equity Market

The S&P 500 or SPDR S&P 500 Trust (NYSEARCA:SPY) seems to be stuck in the mud. It has not been able to move over the last two weeks. This 2165 area is proving to be incredibly resistant, whether it be a bull case or bear base. Whatever, the case it will not stay here for much longer, that is for certain. How do I know, because the market is never a sea of tranquility? It is like the eye of a Hurricane; everyone goes outside because they think the storm has passed only to have the worst part of the storm to follow. Which way it goes, will be determined by the Fed. A hawkish tone could send things lower. A dovish tone puts 2200 in the cross hairs.

Sector Spotlight

Today, we shall focus on the Consumer Staples SPDR (NYSEARCA:XLP), it down over 1.3% as of 11 am. Weak results from companies like Coca-Cola (NYSE:KO) and Altria (NYSE:MO) do not help.

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We can see the sector as a whole as been performing well, for the most part, this year. The ETF is up about 9% on year. However, you have to wonder, at least I am wondering if something is changing. The chart looks as though it is starting to roll over. Something worth monitoring.

The NASDAQ Biotech ETF (NASDAQ:IBB) continues it march higher $3 to $283.28. The index has been performing well since breaking out last week. I have been questioned consistently on calling this breakout by many readers. However, I call it the way I see it, and I see a breakout that appears to be gaining momentum, in an otherwise dull market.

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Currencies

I have to say I am not surprised the Yen is weakening today; I'm just surprised it is not weakening more. The Yen is up one, declining to 105.60 vs. the Dollar. Given the size of the stimulus, which is I think is a moderately sized deal, I thought the Yen would be trading higher. I'm not sure what they have to do in Japan to get the Yen to weaken at this point. Nothing seems to be working for them. They want a weaker Yen, they are an export-led economy, a weaker Yen makes their export cheaper which means they will sell more goods. I have a feeling more will be done, the BOJ is still later this week.

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Commodities

WTI Oil will have to remain the focus again today. As the Dollar continues to strengthen Oil can only do one thing, and that is, go down. The Dollar Index (DXY) is up again this morning, now to 97.29. With that WTI Oil is down another 80 cents to nearly $42. Don't let the media or other news outlets fool you. The price is not only dependent on global demand it is also reliant on the strength of the US Dollar. The correlation between Oil and the US Dollar since January of 2011 is -0.93 with a R^2 of .86. The Trade Weighted US Dollar Index is up nearly 24% vs. WTI is down almost -50%.

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Yield

Quiet day again on the Yield front, with the Ten-Year Treasury down just two bps to 1.54%. Very quietly, the Ten-year has fallen from about 1.60% to 1.54% over the last few days. Things will change for sure after the FOMC.

Election 2016

Hillary Clinton made history last night becoming the first woman to be nominated for President. Unfortunately, for her, she continues to slip in the polls to Donald Trump. The Real Clear Politics average now stands at 45.7 for Trump vs. 44.6 for Clinton. Like I said a few weeks ago it had seemed Clinton was losing momentum and indeed she has. Which is a potentially an excellent reason the IBB and Biotech sector have been better of late? Politics matter!

Have a great rest of the day!

Mike

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.