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