Tomorrow begins the start of a new month, and a new quarter. And everyone is waiting for the big jobs number at 8:30am. The problem is I don't see how the market rallies tomorrow, no matter what the jobs number is.
The market is already feeling a little overbought in the short-term. So investors need a new catalyst to drive the market higher.
Let's look at 3 generic scenarios for tomorrow:
- The number comes in on expectations. Under this scenario I expect to see a "sell the news" reaction. Many analysts have already ramped up their expectations for tomorrow. A good number is already priced in. If we see a strong number the natural reaction will be to lock in recent profits pushing the market lower.
- The number comes in much better than expected. Many would suggest that a much stronger number would result in a big rally (and in fact that is what many traders are betting on). But in my opinion a strong number will simply reinforce fears of no QE3 and result in a sell off in the market.
- The number comes in worse than expected. This, for me, is the trickiest scenario. On the one hand a weaker number should see selling as disappointed traders sell stocks they bought in anticipation of a good number. On the other hand, a weaker number will support calls for QE3 and may have the perverse effect of putting a bid to the market. I think the net effect will still be a negative, but my confidence level is lowest under this scenario.
I scaled back a number of positions today, both long and short, but remain small net short going into tomorrow's number.