Since the market rallied 170 points on May’s dreadful 75K jobs report, should we expect it to give up those gains on June’s stellar 224K jobs report?As we approach the open, we can see that sort of logic working its way through the futures.  It might not be quite as easy for the Fed to justify any rate cut in July, let alone a 50 bps cut.

continued for members…

ES’ latest rising channel has broken down… If the July 3 highs were to hold and SPX were to reverse 1.7% shy of its major 2.618 Fib extension, it would leave us with some sketchy Fib levels.  But, stranger things have happened.Note that VIX never did make new lows and is, by all appearances, rebounding from its .886. A long position at 12.44 is a relatively safe bet, as stops at 11.03 mean a modest exposure.  Be aware, however, that VIX would need to breakout above the red fan line for the long position to pay off.While they are stalling, oil and gas show no signs of reversing, which is in bears’ favor.  If the White House is determined to force the Fed into easing in July, this should put additional downward pressure on prices — the better to force a lower CPI read. On the currency front, we’re seeing the initial, expected, repercussions.  No cut means higher interest rates which means dollar strength.  EURUSD is hinting at a breakdown……USDJPY a breakout……and DXY a re-entry into its broken channel. But, we know that rates move for a variety of reasons.  For instance, an equity correction shifts assets from stocks to bonds in a flight to safety — a phenomenon which easily outweighs moves motivated by forecasting Fed action as we saw in December.ZN is currently testing its SMA20 — something it hasn’t done since May 3 in the early stages of SPX’s 218-pt decline. Our yield curve model still supports the notion of an equity decline — though it would get more adamant if it broke out/down from the rising white channel.If stocks are to break down here, we would want to see ES/SPX drop through their SMA10s and VIX break out above 15.45.UPDATE:  11:00 AM

SPX has bounced off its SMA5 200 — a common turning point for markets dominated by algo activity.  Even though VIX hasn’t reached any important resistance, we could see it reverse here in order to prevent further equity downside.  USDJPY continues to assist.