Volatility abounded today as data, earnings and a surprise central bank move sent assets of all classes moving.

Introduction

The top item of interest this morning was a surprise move from the Swiss National Bank. The bank decided to end its ceiling for the Swiss Franc versus the Euro and caused a massive shift in valuations across many currencies. The EUR/CHF fell more than 18% on the news and sent the euro crashing versus the dollar.

Asian indices were closed long before the announcement from Switzerland and were the only ones not to feel some sting from the move. Markets in this region closed 3% higher on average following an interest rate cut from the central bank of India and supported by an early rebound in oil. European stocks were also up in early trading, lifted by the oil price. They suffered a quick dip into negative territory when the Swiss news hit the wires but quickly rebounded to close near the highs of the day. All except the Swiss stocks, the Swiss SMI Index fell nearly 9%.

Market Statistics

The Swiss bank had an effect on early futures trading here at home but it was negligible and the indications remained positive. Today's economic data caused a wobble in values that eventually stabilized to the upside and this held into the opening bell. The S&P 500 was indicated to open about 5 points higher and that held true although it and the other indices turned negative within minutes of the open. It may be a coincidence but oil, which had been trading at a the high of the day around 9AM, retreated to break even and turned negative in tandem with the opening bell.

The first hour of trading was fairly active. The indices dipped nearly a full percent from the initial high and then rallied back to break even. The bulls were able to push the markets back into the green for a few minutes but were quickly repelled. Afterward they drifted back to the lows of the day and then lower to settle at levels that for many of the indices are consistent with long term support.

Economic Calendar

The Economy

There was a fair amount of economic data to wade through today. First up was the Empire State Manufacturing Survey, one of the first reads of 2015 data. The survey rose by 11 points to 10, moving into positive expansionary territory after last month's dip. The gains are due mostly to growth in New Orders and Shipments and offset by mixed readings on Labor. The number of employees component continues to show growth but the hours worked remains in negative territory. Input and output costs both rose slightly signaling some, but low, levels of inflation. The forward looking expected conditions index also rose, by 10, to the highest level all year and shows widespread optimism for the future 6 month period.


The Producer Price Index fell by -0.3% in December. This is slightly better than the -0.5% expected by the market and on top of an unrevised -0.2% in the previous month. The core PPI rose by 0.3% and is more in line with general conditions. The decline in headline numbers is due primarily to energy, down -6.6%, led by gasoline, down -14.5%. I think this to be a mixed reading but shows some underlying inflationary pressure in the general economy. On a year-over-year basis PPI is up 1.1%.

Jobless claims rose unexpectedly, most likely due to post holiday staff re-alignment. Initial claims rose by 19,000 from an upwardly revised figure for a net gain of 22,000 from last week. This above expectations for 295,000 and above 300,000 but as yet not disturbing. The four week moving average is still below 300,000 which makes claims appear to be stabilizing around that level. On a not adjusted basis claims jumped by 23.2% versus the 15.6% projected by the seasonal factors. This number may climb in the next week or two as we move through the end of year data.


Continuing claims fell by 51,000 to 2.42 million and are hovering just above the moving average. Continuing claims lag initial claims by a week so will likely show an increase in the next week or two as well. This week's reading is in still in line with recent trends and at levels supportive of labor improvements. The total number of claims for unemployment spiked in this weeks report, for the week ending 12/26. This is the data for Christmas week so this number could reflect people who didn't go out looking for work because of the holiday, as well as seasonal lay offs and other factors. While alarming it's just one week of data and could quickly recede if all the other labor trends remain constant. Regardless the spike, total claims is trending roughly 25% below last years levels.


The Oil Index

Oil was among the most volatile of today's trades. There was an early rebound that lifted prices more than 3% in the pre-market session that reversed mid-morning to sink prices by more than -4%. WTI was the most volatile but Brent and Natural Gas were not immune, both fell by at least -2% during today's session. A possible cause was today's and this week's economic data which has not been that great. The data shows there was likely a slump in output in December which led some speculation of weakening demand growth.

The Oil Index gapped up at the open, on the early strength in oil, then fell throughout the day. The index lost about a half percent by the close and was not one of today's biggest decliners. The index is now trading just above support targets with bearish indicators. Both MACD and stochastic are convergent with potential support but neither has confirmed as yet.

I redrew my XOI charts today, they were getting kind of messy, and came up with some interesting things. I now have a Fibonacci Retracement of the 2009-20012 bull market with two trend lines. The first is based on the 2009 start and 2010 confirmation of uptrend while the second is is the nearer term down trend line which began in September. The near term trend is still down and the index is being forced against potential support by the down-trend-line at an important Fibonacci level. And at a place intersecting the new up trend line which poses an interesting technical question. Which trend line will be stronger?


The Gold Index

Gold prices surged today. The metal climbed more than 2% in today's session driven by the Swiss central bank. The shift in policy sparked a flight to safety trade that had once been directed at the Franc. The banks decision not to support this trade any longer was probably a good move for them but caught a lot of currency speculators off guard. It also helped gold to break above $1250 and $1260. Gold is now trading at a four month high and 10% off the lows set last fall. At these levels it is beginning to look extended, and with more central bank activity on the calendar for the next week, could easily pull back.

The Gold Miners ETF GDX continued its break above resistance after pulling back in yesterdays session. Resistance at $20.50 is now becoming support but may be tested again. The indicators are bullish and on the rise after yesterday's dip but not overly strong and could indicate more consolidation, retesting support or even lead to whipsaw action. I'm more and more bullish on the miners each week but am still very cautious in the near term. Things may look different in the gold sector next week after the ECB and BOJ have their say. Speculation in the news suggests that the Swiss move is foreshadowing QE moves the ECB will enact next week, moves that were just deemed legal by EU courts.


In The News, Story Stocks and Earnings

The bankers were in the news and in general it is not great. As a group the big bankers have disappointed on the top and bottom lines driven by legal charges, lower revenues and other factors. Each of the big names reporting so far, Wells Fargo, JP Morgan, Citigroup and Bank of America are on the list. Needless to say the sector is getting slammed. The Banking Index fell 1.79% in today's session on increasingly bearish momentum. The index is approaching a three month low near $65 and the bottom of the 12 month range.


Target announced that it was exiting Canada, finally. The company has been struggling in the country for years and is estimated to have lost more than $5 billion on the move. The news was largely expected but otherwise well received by the market. The stock mad a small gap at the open to trade just below the all time highs set last week.


Intel reported earnings after the bell and beat expectations. The chip maker reported $0.74 per share versus the $0.64 expected by the street. Revenue beat although sales of PC chips was flat near $8.9 billion. Sales of data chips rose to $4.1 billion driving revenues and helping margins which have improved. The company guided a range in line with expectations but did not inspire confidence sending the stock down in after hours trading.


Schlumberger also reported after the bell. The oil services and information technology company reported adjusted earnings of $1.51, slightly ahead of expectations, on revenue that was in line with projections. Business was driven by North America which saw an increase of 17%. The company also reported that it is making moves to deal with the low oil environment which include job cuts and other restructuring. The stock fell in after hours trading and was trading at a 1 ½ year low.


The Indices

We got another wild ride today. The indices moved in a +1% range after opening in the green only to close in negative territory. Market action was not orderly, today's movement was a back and forth fight between the bulls and bears that have the indices down at long term support levels. Today's move was led by the techs but not limited to them.

The NASDAQ Composite fell by 1.48% today, dropping down to rest on the long term trend line. Today's action is accompanied by bearish indicators which point to a testing of the trend line but the longer term analysis is still in line with support at this level. A break below the trend line could lead to further selling with next targets at 4,500 and 4,000.


The S&P 500 was another big lose in today's session. The broad market fell 0.92% and is also now resting on its long term trend line. The index has been pressured lower by lackluster earnings and economic data but has yet to break the trend line. The indicators are bearish in the near term but continue to remain consistent with support along these levels in the short to long term. There could be further testing of support with a possible move down to 1970.This would pierce the trend line but is above the December low so not a threat yet. A move below 1970 may signify a deeper correction down to 1900 or lower and set up for potential reversal. However, unless outlook begins to deteriorate the long term trend will likely provide another buying opportunity.


The Dow Jones Industrial Average fell only 0.61% compared to the NASDAQ's 1.48% decline. The blue chips closed near the low of the day but off of the low set yesterday, a low that may indicate support levels. Yesterday's candle has a long lower wick which, along with MACD peak analysis and a support line drawn to the January 6th low reveal a potential support level consistent with the September highs around 17,250 set last fall. It definitely looks like the index is moving lower, into that support level, but it also looks like there is plenty of support there. A below 17,250 won't start to get serious until it break 17,050 at which point it may extend the retreat to 16,750.


The Dow Jones Transportation Average suffered the least decline. The transpots fell only 0.39% in today's session and are trading just above support. Support is consistent with the all-time high set in July, the break-out in October and the test of support in December so appears to have some strength. The indicators are bearish in the near term but like the other indices, remain consistent with longer term support. There is no indication of major reversal at this time so this pullback appears to be that, a pullback and another chance to buy on a dip.


The markets are struggling with some near term fears but the long term trends remain up. Fear born on plunging oil prices have been compounded by weak earnings and magnified by the Swiss central bank. These fears need to be taken into perspective. Low oil is good for the economy in general. Weak earnings happen sometimes, it is just the first week of the season and not all companies are disappointing. The Swiss central bank move was a surprise, it probably cost some people a lot of money but represents only a small shift in underlying fundamentals. For us here in the US long term economic trends remain positive and on the rise with no indication of letting up.

Expect more of the same volatility tomorrow because the mix of earnings and data continues. Earnings season rolls on with more reports from the banking sector including Goldman Sachs, First Citizens and Suntrust. On the economic front look out for CPI, TIC flows, Michigan Sentiment and industrial production. Rear looking December data in the form of CPI and Industrial Production is expected to show declines while the more current January Michigan Sentiment is expect to rise. Looking out to next week there is no let up to the data or the earnings. Earnings seasons gets into full swing and there are a number of market moving economic reports along with two major central bank meetings.

Until then, remember the trend!

Thomas Hughes