If the market falls on light volume to the S&P’s lower uptrend line in the 1250 area ($125 for SPY) tomorrow, then that will be a good long-side entry point.
If the volume is heavy, then it will be best to wait for a reversal pattern to appear since the market will be unlikely to just snap right back. Even so, there will be buyers on a high-volume decline.
Jim Cramer has ordered his followers to ignore the jobs report if it is bad and buy the dip. Cramer’s followers are not just people watching TV, but there are actually quite a lot of hedge funds that take direction from his rantings. They will buy.
Also, Jason Goepfert at sentimentrader.com has done statistical studies showing that out-sized gains and losses from big events like the jobs report and FOMC meetings are usually reversed within a few days, and then the market gets back to what it was doing before the event.
The market burned off a good deal of its short-term overbought condition before the close Thursday. So, a large gap down Friday morning will get us to oversold country in a hurry.
If the market holds at the lower trendline and then bounces with increased volume, then that will indicate strong support. That’s what happened after the gap down Thursday morning. The market could not push to new highs because it was overbought, though it did hold up almost the entire day. A big gap down Friday morning will establish a more oversold condition, and any bounce is likely to stick better.
Other ways to play:
1) Wait for a high-volume breakout above Thursday’s high and jump on.
2) Let the breakout run, and then buy in when the market comes back down to test the breakout to see if the resistance has become support.
3) Same as above but in reverse if there is a heavy-volume breakdown below the lower uptrend line.
Watch the comments for updates during the day.