The Year of Volatility
Today’s Spotlight Market
Today is the Chinese New Year and the Year of The Monkey. In the financial world, volatility has been the dominant theme since the start of 2016. Traders were eagerly anticipating the January nonfarm payroll report last Friday. The extreme volatility in the equity markets during January had many investors examining economic data to determine the date of the next Fed rate hike. The Fed did finally raise rates in December of 2015, but they are still at a very low .25% rate by historical standards.
Fundamentals
Nonfarm payrolls increased by 151,000 in January 2015. This was substantially lower than December of 2015 which was revised downward to 262,000. November 2015 was revised upward to 280,000. In addition, the unemployment rate dropped below the 5.0% natural rate of unemployment to 4.9%. Average earnings increased by .5%, indicated potential wage push inflation for the future. Unlike the previous 2 years, most of the United States didn?t see brutal winter weather in January, potentially affecting hiring. U.S. equity markets responded with a sharp sell on Friday, continuing the volatility that has been the theme for early 2016.
Technical Notes – View Today’s Chart
Turning to the 6 month continuation chart, we see that the mini Dow has just bounced off a double bottom in mid-January which retested the August lows.? The short term trend is bearish, with the 20 day Simple Moving Average (SMA) not only below the 50 day SMA, but the curve of the 20 day SMA is much steeper than the 50 day SMA. Still there are some signs of a possible reversal as recent trading has shown the mini Dow breaking above the 20 SMA, which was providing resistance. 14 day Relative Strength Index is a neutral 48.5.
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