S&P …….. Year-End Rally Coming

S&P …….. Year-End Rally Coming

Summary

Biotechs, Financials, Industrials and Technology may be the groups that take the S&P 500 finally over 2,200 and onwards to 2,250.

Barring any unforeseen events, it would seem we could have a vast chase for performance going into the end of the year.

In fact, it would not surprise me if the S&P 500 finished over 2,250, which is only 2.5% away.

Traders check computer screens showing the Japanese yen rate against the British pound at a brokerage in Tokyo.The pound suffered a "flash crash" in Asia on a computer-generated sell-off in the beleaguered currency.

Traders check computer screens showing the Japanese yen rate against the British pound at a brokerage in Tokyo.The pound suffered a “flash crash” in Asia on a computer-generated sell-off in the beleaguered currency.

Opening

The equity market seems primed to break out at any moment. The Biotechs (NYSEARCA:XBI), Financials (NYSEARCA:XLF), Industrials (NYSEARCA:XLI), and Technology (NYSEARCA:XLK) may be the groups that take the S&P 500 (NYSEARCA:SPY) finally over 2,200 and onwards to 2,250.

I know, 2,200 is only seven points away with the S&P 500 currently sitting at 2,193. Why do I suggest there will be an S&P 500 melt-up coming? Just take a look at these charts.

(Interactive Brokers TWS)

First, the S&P 500 is butting up against the 2,193 resistance from the prior highs. Second, the S&P 500 has forcefully reclaimed the teal trend line created off the February lows.

Here is a closer look at this:

(Interactive Brokers TWS)

You can see how we are doing our best to push through this morning.

Why do I say that Biotech, Financials, Industrials and Technology shall lead this charge higher? Look at their performance since the election.

(Mott Capital Management, LLC)

Notice the sectors lagging? Utilities and Staples. The fact that Utilities (NYSEARCA:XLU) and Staples (NYSEARCA:XLP) are lagging should come as no surprise. These are slow growing, high yielding sectors, which have been hurt by the recent rise in yields and the move into to risk-on sectors.

However, one can wonder then why Technology has lagged? Well, I think that is about to change relatively soon as well too.

(Interactive Brokers TWS)

Technology seems primed and ready to get involved in this current rally too. If Technology can join, I think the S&P 500 has much further to run.

You can see how the Financials and Industrial ETFs have recently broken to new highs.

XLI

(Interactive Brokers TWS)

XLF

While this has been happening, volatility and fear seem to have vanished.

(Interactive Brokers TWS)

The VIX (NYSEARCA:VXX) has fallen to its summer lows.

Barring any unforeseen events, it would seem we could have a vast chase for performance going into the end of the year. Why do I suggest we have a chase for performance? Let’s take a look at the Eurekahedge Hedge Fund Index, which was up 3.07% through the end of October 2016, while the S&P 500 Total Return Index was up 5.87% through the end of October.

^SPXTR Chart

^SPXTR data by YCharts

The Hedge Fund universe is likely playing catch-up going into the last few weeks of the year. Funds will have the added pressure of being involved in those best-performing sectors of the markets. Provided we do not get any surprises, the investing community realizes that the next six weeks or so should be relatively smooth sailing if we use the VIX as our guide.

I would think that before year end, we could see the Technology group replace the Industrial as the number three best performing group since the election.

The lagging seems to be based on this idea at a new Trump administration may come after the technology group and impose some form of regulations or that companies with plants overseas may be hurt seems overblown to me and just lacks common sense. I can’t see a Trump administration cracking down on a technology sector, especially since technology is so intertwined with the fabric of today’s business and personal world. If anything, I would think he would try to spur the growth of the sector.

Summary

What does this mean going into the last six weeks of the year? We could see a melt-up. In fact, it would not surprise me if the S&P 500 finished over 2,250, which is only 2.5% away. After all, it would fall perfectly in line with the prediction I made on December 31, 2015, for the S&P 500 to finish 2016 between 2,250 and 2,300.

Mott Capital ManagementPremium Research »

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