Step 1:
Create a new image, File > New or Ctrl+N, set the Width(800) and Height (600). Change your background color to white #FFFFFF.
Step 2:
Create a new layer, Layer> New or Shift + Ctrl + N Click on the Elliptical Marquee Tool
. Draw a circle as shown below.
Apply the gradient going from the bottom to the top, as shown below.
Gradient Setting
Gradient Direction
If you did everything right you should have something like I have below. Press Ctrl+D to deselect your layer.
Step3:
Click on the Smudge Tool
and set your brush setting to what I have below. Use your smudge tool to click on your image and drag the gradient out.
If you keep dragging the gradient out you will get something like I have below.
Step4:
That is it , if you keep keep playing around with the smudge tool you will get different effects.
More Tutorials: 
