- The S&P 500 has fallen a bit during the trading session on Thursday, after the ADP jobs report came out much stronger than anticipated.
- Because of this, a lot of traders are starting to worry about whether the Federal Reserve will continue to tighten monetary policy, which quite frankly I think it will. The Non-Farm Payroll numbers come out on Friday, and that in and of itself will have a huge effect on what happens next.
- If the job number is extraordinarily hot, you can probably see the market fall apart, perhaps sending the market below the 3800 level.
On the other hand, if we were to break above the 50-Day EMA, and ostensibly the 3900 level, the market could go much higher, perhaps reaching the 200-Day EMA which is closer to the 4000 level. Keep in mind that we have been in a downtrend for a while so it does make a certain amount of sense that even if we do rally, there will be plenty of sellers out there willing to get involved.
Noise Ahead
The markets will continue to see a lot of noisy behavior, and of course, it’s amazing how many people are out there hoping that the Federal Reserve will come riding to the rescue. No matter what the Federal Reserve says, they seem to always find a reason to doubt what they are going to do. I believe it’s obvious that the Fed is going to say tight for quite some time, and therefore I don’t have any reason to try to fight them.
If we do not get a bigger move during the day on Friday, I suspect that by the time we get back next week, we should see the market move in a bigger action. Ultimately, the market is more likely than not going to continue to break down, perhaps reaching toward the 3800 level, followed by the 3700 level, and then eventually the 3600 level. I think that is the most likely outcome, but if we do rally, I’ll be looking for signs of exhaustion to start shorting. It’s not that we can’t rally, it’s just that I don’t think it has any real reason to last over the longer term. With this, I believe that eventually, we will be sellers.
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