Jobs Report Will Set Friday's Tone

The markets probably want to see nonfarm payrolls for May right near expectations -- or just a little lower

By Paul Cherney

From Cherney Market Analysis

On Friday, at 8:30 a.m. ET, the markets will be greeted by the May employment report. The Street expects a nonfarm payrolls increase in the area of 175,000 to 180,000.

Since there has been speculation that the Fed could be nearing the end of its tightening cycle, this raises the question: what kind of a nonfarm payrolls number would the Street prefer to see? Judging by the reaction to Wednesday's speculation that the Fed could be close to an end in the current tightening series, my guess is that the markets probably want to see nonfarms right near expectations, maybe just a little lower, near 150,000. If the number is huge on the upside (like above 200,000), that might rekindle concerns that the Fed will continue its "measured" pace of rate hikes past the June meeting.

Right now, I do not have any distinctly strong short-term measures to suggest up or down on Friday, but the price and volume action of the past 12 trading days has exhibited positive readings for price and volume that usually mean there is an underlying willingness to buy. When I see conditions like these, I expect any short-term bouts of profit-taking to ultimately be viewed by the markets as a buying opportunity that causes a rebound in prices, so even if there is a negative price reaction to the employment report, the first retracement from current levels should attract buying interest for a rebound. I do not start to become concerned about being wrong about the willingness to buy short-term dips in price unless or until the Nasdaq posts a close that represents a loss of 2.5% from its highest close. For the current market, that would be equivalent to a Nasdaq close under 2,045.

Historically, when the Nasdaq is outperforming the S&P 500, both indexes benefit, and that is the case right now, but there is also a pattern that often takes place after the initial lift (which is where I think we could be right now), and that pattern is that relative strength can shift for a brief period of time (several trade days, even a week or two) to the S&P 500, that could be the case over the next few trade days, although it certainly was not the case for Thursday's session. Relative strength does not necessarily mean that the S&P 500 will gain more on a percentage basis relative to the Nasdaq, relative strength can also mean that the S&P 500 does not decline as much as the Nasdaq (on a percentage change basis).

Technical Levels

• The Nasdaq resistance is 2,075-2,103.45. The next layer of resistance is 2,106.19-2,116.75

• Immediate intraday support for the Nasdaq is now 2,095.54-2,083, then 2,076.80-2,067.23.

• Immediate resistance for the S&P 500 is 1,198-1,229.11. The next focus of resistance is 1,205-1,215.

• Immediate intraday support for the S&P 500 is 1,197.39-1,191.03.

• The S&P 500 has a shelf of good intraday support at 1,191.23-1,187.66.

• The S&P 500 has numerous layers of support including 1,194-1,185.19. There would be some concern for a short-term shakeout if the S&P 500 spent more than 4 minutes below the 1,185.19 level. Supports are stair-stepped and stacked and it is usually difficult for prices to just slice through supports like these. Support is overlapped at 1,187-1,180.87, which creates a focus of support at 1,187-1,185.19. A move below 1,180.87 would not be healthy, and could ignite some fear-driven selling; the next layer of substantial support, though, is directly underneath 1,180.87 at 1,178.87-1,165.

I think the chances are good (I expect) that sometime over the next 20 trading days, there should be an S&P 500 close at or above the 1,215.00 level, Nasdaq at or above 2,119. Technical measures might continue to improve, and that would improve the chances for even higher closes. Prices do not have to make a straight-line ascent to those levels.

Disclaimer: Use of the information provided by Cherney Market Analysis, Inc., is subject to the Terms of Use contained on its website,

Cherney is president of Cherney Market Analysis

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