Today's Sell-Off Has Nothing To Do With China

| About: iShares MSCI (EWJ)

Summary

Just yesterday, I wrote that the machines had taken over and seemed to be in charge at this point.

This 2115-2120 level was rock solid in September.

Until the bears can crack that, the best bet is to remain calm and let the rest of the market run around like a chicken without its head.

Opening Rant

Just yesterday, I wrote that the machines had taken over and seemed to be in charge at this point. If we go back to Sept. 29, I wrote:

There are a lot of inflection points it would seem this morning, for what is a rather quiet day on the surface. The Biotech sector is on the cusp, the Yen is on the cusp, and Ten-year is on the cusp. There seems to be a significant shift occurring at this time. These changes will cause a rotation to occur, and it is likely to bring volatility with it. Be mindful of higher yielding equities (NYSEARCA:HYG) at the moment, be mindful of Biotech (NYSEARCA:XBI) and be aware of Japanese (NYSEARCA:EWJ) equities. There seems to be a wind of change blowing.

All three were on the cusp of change, and three have now shifted dramatically since then. With the yen (NYSEARCA:FXY) going from a strengthening to a weakening trend, yields (NYSEARCA:TLT) now directionally moving higher, and the biotech (NASDAQ:IBB) on the cusp of a complete meltdown as it seems to be preparing for a Clinton presidency and possibility of a Democratic senate.

The question now becomes: Is the S&P 500 (NYSEARCA:SPY) broken, and does it go lower?

You can blame China data; you can blame a pending Fed rate hike or whatever other excuses the media can drum up. Let's work through this and figure it out together because this is not happening all of a sudden happening. This rotation has been happening over the past few weeks.

Markets and Sectors

When you live in markets dominated by the machines, you need to think and act like a machine and find the thing they are searching for before they find them. In yesterday's article, I talked about the market bouncing off the 2128 level on Tuesday and likely trading up to 2145. Guess what happened yesterday?

The S&P 500 traded right up to 2145 and then sold off. Look what is happening this morning -- we gapped lower and trade right to the 2115-2120 level lows from September.

This 2115-2120 level was rock solid in September. A break of this level will be a clear sell signal for the market. As for now, this level seems to be holding. In fact I would not be surprised to see the S&P 500 trade back up to 2130-2135 before it moves any lower.

Biotech has been pounded of late, falling from $290 to $270 in a straight line.

The thing only that seems to have changed during this time is the likelihood of Clinton presidency. As for now, $270 is holding barely.

Materials (NYSEARCA:XLB) are down nearly 1.5% today and are trading at $45.75. This sector is likely not to do well in a strengthening dollar environment. This $45.75 level seems to be offering some support to the materials for now.

Technology (NYSEARCA:XLK) is also down over 1% and is now trading around $47. The XLK has not been able to break to higher highs above $48 and has been retreating as well of late. However, this too is finding some support.

Yield and Currency

So far this morning, we seem to be getting some dollar weakening.

Yen

Euro

You can see the dollar is weakening slight today vs. the euro and yen. However, the trend is still loud and clear, and it points to a strong dollar.

The most interesting chart is the Chinese RMB, which just continues to weaken vs. the dollar, to near multi-year lows.

How Should We Interpret This?

Days like today can be confusing, but we need to remember nothing goes up or down in a straight line. We also need to keep in mind that machines all chase each other, so when one machine starts selling other machines need to play catch-up. This puts added pressure on the market. Remember like I stated earlier, that 2115-2120 level has been support in the S&P and has been strong support. Until the bears can crack that, the best bet is to remain calm and let the rest of the market run around like a chicken without its head.

Summary

As for now, the S&P 500 is finding support once again in this 2115 to 2120 level. Biotech, technology and materials are all finding levels of support. Perhaps some dollar weakening today could help the market out. However, we need to be careful what we wish for. Some investors scream that the Fed should raise rates. However, one needs to make sure what a rate hike means and the potential impact in a market that has multiple expansion because of the low rates. Remember that it was only in December that the S&P 500 was trading around 2050-2100 when the 10-year was near 2.25%.

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.

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