What a start to the New Year! Talk around the street voiced a few reasons for today’s stock market declines from geopolitical tensions between Saudi Arabia and Iran to additional dealing costs associated to playing the markets. Discussions are apparently underway across the globe to address market orders, the way in which orders are placed, the magnitude of such orders and the frequency. This, of course, will increase the volatility of prices (as market-makers withdraw) whilst at the same time lead exchanges to increasing margin requirement’s.

Chinese equities lost all bids with two exchange forced closes earlier today. The initial 5% forced the first close only to be closed the second time after the Index fell 7% – this time for the remainder of the day. The Nikkei opened the year over 1% lower and continued the selling throughout the rest of the day to close down 3% at 18,450. The futures have continued that decline and are currently trading around 18,150.

Europe opened weakly and remained so for the balance of the day. DAX closed -4.3%, FTSE -2.4%, and CAC -2.5%. In the U.S., we saw initial weakness across the board but all recovered in the final 30 minutes of trading.

The DOW, S&P, and NASDAQ all recovered to close at their days highs. All markets closed lower but a huge improvement in the final twenty minutes from their lows. DOW -2.1%; S&P -1.5%, and NASDAQ -2.1%.

Both gold and the bond markets saw the flight to quality bid with gold jumping $15 while bonds rallied 4BP across the curve. The spread between U.S./Germany closed around 166bp with U.S. 10s yielding 2.235 whilst German 10s closed 0.57%. This year, we should also follow the peripheral European bond market, so for point of fact we shall include 10yr Italy also; so tonight the BTP closed at 1.55%.

The U.S. dollar saw the bulk of the in-flow with the DXY (USD Index) closing up 0.25% at 98.95. The Turkish Lira was one of the EM currencies that suffered (amidst the market turmoil) closing down on the day almost 1.6% against the USD. GBP and Euro also lost ground but only a marginal 0.25%. A couple of other currencies to mention would be the BRL that lost 2% and the Polish Zloty that lost 1.2%.

QUESTION: Marty, at the WEC you said the Dow would go down in the first quarter. How far do you see this going this time?

ANSWER: We elected a monthly Bearish Reversal at year end and closed lower than 2014. The main support starts really down at 15850 level followed by 15370. We can see even technically the Stochastics are showing a correction is forming and we lost the upward momentum. A monthly closing beneath that level will confirm a deeper correction. Many people expect the stock market to decline with higher interest rates domestically and others see that an uptick in US rates will be the kiss of death to Emerging Markets which will be bad for the world economy as a whole. Keep in mind that these are likely to put a bullish spin yet of the dollar fueling the deflationary spiral for now. I have stated that this is critical to understand the future.

We have initial support forming at the 16886 level and a weekly closing below that will confirm a continued decline. Our Daily models warn of important support starting at 16930.

Volatility should rise doing into next week and we have a slew of Directional Changes in a row on the Weekly level warning of a very choppy market ahead into early February.