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Market Update

Commodities, Currency Commotion Brings Volatility

January 20, 2015

Traders return from a long holiday weekend already riding a slippery slope of volatility greased by international events and uncertainty heading into the depths of earnings season.  

In fact, volatility is higher across many asset classes. For starters, the CBOE Volatility Index (VIX), which tracks the implied volatility priced into S&P 500 Index (SPX) options, hit a three-week high of 23.43 Friday as the SPX was at risk of a six-day losing skid. But true to Freaky Friday form, the broader market rebounded late in the day. SPX support now lies at 2000, with resistance hovering at 2022. VIX finished last week at 20.95, teetering just at the psychologically significant “20” line (figure 1). Still, VIX is now up 9% so far this year, outrunning a 2% year-to-date drop in the SPX.


The CBOE Volatility Index (VIX) tracks the implied volatility priced into S&P 500 options. It’s up 9% for 2015. Chart source: TD Ameritrade’s thinkorswim® platform. Data source: CBOE. For illustrative purposes only. Past performance does not guarantee future results.

Gold, Oil, Euro Log Dramatic Swings

In addition to earnings jitters, volatility in other assets seems to be spilling over into the U.S. equities market.

For instance, crude oil rose modestly last week, but volatility remains elevated. The CBOE Crude Oil ETF Volatility Index (OVX), the “VIX” for oil, added another 12.8% last week to hit 56.4. Oil futures during the week hit fresh multi-year lows just below $46 a barrel. By comparison, OVX sat at 17 a year ago. Gold volatility is also widening its daily moves.

Notably, last week’s big swings in the euro triggered a substantial increase in the CBOE EuroCurrency Volatility Index (EVZ), which is now up nearly 50% year to date. Last week included the “Swiss Mess,” a surprise move by the Swiss National Bank to unhinge the franc from the euro. The resulting sharp swings across the currency slate spilled into the stock market. Figure 2 shows the year-to-date moves for a handful of volatility benchmarks.

FIGURE 2: Year-to-date volatility is on the rise across several markets. Data source: CBOE. For illustrative purposes only. Past performance does not guarantee future results.

Higher levels in implied volatility across many assets, like gold, oil, currencies, and equities, reflect the macro uncertainties clouding trading these days.

It’s against that backdrop that earnings begin to take center stage. If other sectors of the market follow in the footsteps of the big financials, watch for volatility to froth.

Earnings Heat Up

The reporting season is certainly off to a rocky start after a number of big banks posted results last week that were worse than expected . Shares of Citi (C), Bank of America (BAC), and JPMorgan Chase (JPM) suffered losses in the wake of quarterly results, with many reporting disappointing trading revenue.

These early bank reports are only the tip of the iceberg. Some 90% of the S&P 500 is still due to release results. According to Zacks Investment Research, analysts expect overall earnings to be up 1.3% from the previous quarter on 0.7% lower revenues. That likely means cost-cutting impacted the bottom line and there’s greater pressure on management to ease concerns for future revenue opportunity. On the other hand, Wall Street may be conditioned for disappointing results. If the reality proves better than expected, a solid earnings quarter may just calm these early-year jitters. Included on this week’s line-up: earnings from CA Inc. (CA), IBM (IBM), and Netflix (NFLX).

All Eyes on Europe

Finally, on the economic slate, housing numbers dominate a light U.S. calendar over the next four days (figure 3). Weekly oil and natural gas inventory numbers are due out Thursday and might hold more sway than usual thanks to the ongoing volatility in the energy space.

And, the global stage will likely be of particular interest to financial markets. This includes the European Central Bank’s policy decision on Thursday. Most handicappers widely expect the ECB to announce a government bond-buying plan (yep, a round of quantitative easing outside the U.S.) to stimulate the deflation-hit euro zone. Attention could also swing Davos way, where some of the most powerful financial decision-makers converge for their annual retreat.

Good trading,

FIGURE 3: Weekly U.S. economic report calendar. Source:

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