Slippery Slope Of Hope

The market sold off on Friday and closed the week at new 52-week lows. Intraday lows have not yet been tested on the SPY, but they continue to beckon. With the lack of panic that exists in the market we can only conclude that the market is drifting down a slope of hope here and without a rate cut the 200-week average is unlikely to hold, setting up for a panic low near $123.00-$122.50.

Outlook:

Unless the Fed steps in with another emergency rate cut January lows are likely to be tested. And, considering the aggressiveness of recent selling, January lows may not act as support, but rather a milestone on the way to an extreme target of $123.00-$122.50. A move to this area would be ideal and would set up an excellent buy opportunity for a countertrend rally.

Understand though that this is just one potential scenario. Another scenario that could potentially unfold would be for the SPY to find support at its 200-week average at $129.50 where it would create a higher low.

*Assuming the Fed doesn't come in with another emergency rate cut. If they do, we suggest everyone lock in profits on their shorts immediately. In addition, it is likely too late to open new short positions here. Rather, maintain the short positions taken over the past week but don't get extended by shorting too late. Pullbacks are sure to occur as prices work their way lower.

Friday's Jobs Number: The market sold off after the expected 30,000 new jobs turned out to be a loss of more than 60,000. John Mauldin argues, however, that the real loss may number closer to 2,000,000. Ouch!