Pay close attention to the bond market, because if yields start to spike again, then it’s possible that we will see the NASDAQ 100 take a real beating. 

• The NASDAQ 100 Index gapped lower to kick off Friday as the jobs number in America showed that there were over 500,000 jobs added during the month of July.
• As the market got wind of this, it started to sell off as interest rates in America started to rally.
• Because of this, a lot of pressure came in on the stock markets.

Keep an Eye on 13,000

The 13,000 level underneath should be an area of interest, as it was a previous resistant barrier. However, what we will truly be paying attention to is what happens this week, because if we were to break down through that level, it could continue the run lower. On the other hand, if we break above the 13,500 level, then it’s possible that this market will go much higher. The market break above the 13,500 level would be a massive turn of events, but I don’t see that happening without some type of dovish behavior out of the Federal Reserve.

Ironically, the Federal Reserve has been trying to explain to the market how they are not dovish all week. It was not until we sold the jobs number coming as hot as it did that Wall Street started to accept this as reality. Remember, Wall Street is about getting handouts from the Fed, not trading the economy. This is a mistake that the Federal Reserve has made over the last 14 years, and now it has to deal with the addiction that they have forced upon the street. Now that they actually have to pay attention to the economy, the Federal Reserve has to convince an entire generation of traders that there are things beyond loose monetary policy that can be factored into an asset.

If we do break down, the 12,250 level will be interesting to pay attention to, due to the fact that it was previous resistant and of course the 50-day EMA is hanging around in the general vicinity. Pay close attention to the bond market, because if yields start to spike again, then it’s possible that we will see the NASDAQ 100 take a real beating. On the other hand, if yields start to fall, that should be good for this market, as it brings in more “cheap money” from the Federal Reserve, at least that’s the thinking.

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We will continue to see a lot of volatility until things become crystal clear.

• The S&P 500 Index did almost nothing during the trading session on Thursday as we continue to see this market bang up against a significant resistance barrier.
• That resistant barrier is the 4200 level, which is an area that previously has been rather difficult to get above.
• The jobs number coming out on Friday is a major influence on what happens next.

At this point, the market will have to pay close attention to the Non-Farm Payroll number, as it is going to determine what the Federal Reserve is likely to do going forward. After all, the Federal Reserve continues to tell the markets that they are going to remain very tight to fight inflation, but for some reason, the market will not listen to them. This is probably because the Federal Reserve has lost all credibility over the last years, as they have spoon-fed Wall Street.

FED’s biggest problem is going to be inflation

However, the biggest problem that the Federal Reserve will have is going to be inflation. If the jobs number is still very strong, it’s very likely that we will see the Federal Reserve have to tighten going forward, and perhaps that might be what Wall Street pays attention to, at least for the moment. The market has got a little bit stretched, and it looks to me like the 4100 level underneath is going to be a short-term support level. If we were to break down below the 4100 level, then the market is likely to drop down to the 50 Day EMA which is below the 4000 handle.

The alternate scenario is that the jobs number is extraordinarily soft, which means that the Federal Reserve may not have to be as aggressive with tightening as they claim. All things being equal, this is an argument and a game of chicken between these two entities, which is a bit surprising considering that it’s been a week of different Fed speakers trying to explain to the market how wrong they read the last press conference. Because of this, we will continue to see a lot of volatility until things become crystal clear. Ultimately, I believe that by the time we get through the Friday session, we may have a bit more clarity. This would be nice of course, but we will have to wait and see how this plays out.

The size of the candlestick is rather impressive, and therefore it does suggest that there is at least some interest in going higher.

The S&P 500 has rallied rather significantly during the trading session on Thursday to reach the 3900 level. At this point, the market looks as if it is trying to decide whether or not it is going to continue to break out to the outside, but we have the jobs number coming out on Friday which could have a major influence on where we go next. Because of this, I think we have the possibility of a complete reversal, or perhaps a move to the 50 Day EMA.

It’s difficult to guess where we are going next, but it is worth noting that we have a massive downtrend on our hands, and although we have seen a nice turnaround over the last week or so, the reality is we have a long way to go before things truly change. With that being the case, I like the idea of fading rallies at the first signs of exhaustion, and it would not surprise me at all to see a massive move on Friday. The problem of course is guessing where we are going to go next.

The size of the candlestick is rather impressive, and therefore it does suggest that there is at least some interest in going higher. However, it’s worth noting that the volume over the last several days has been less than impressive, so it does suggest that perhaps this might be more of a short-covering rally than anything else. Federal Reserve monetary policy continues to be a big problem, and therefore people are going to be cautious about getting overly bullish, but there are a certain amount of traders out there willing to gamble on what’s going to happen next. Until something truly changes, namely economic information, then it’s difficult to get overly aggressive to the upside.

That being said, if we were to take out the 4000 level to the outside, it’s possible that we could make a move to the 4200 level. At the 4200 level, I would consider this to be a major trend change. At that point, the S&P 500 will completely ignore the economy, or perhaps guess where it’s going next, and go much higher. One thing is for sure, there is going to be a lot of noise, as there is nothing but uncertainty out there.