The S&P 500 (SPX) began and ended Friday sharply lower, states Jon Markman, editor of Strategic Advantage.

The benchmark index skidded 1.6%, to 4,108 after the May employment report came in stronger than economists anticipated.

Traders believe stronger economic data gives the Federal Reserve more runway to raise short-term rates to slow growth. That may be true, however, I wouldn’t get too excited about the weakness on Friday. The benchmark ended the week only 1.2% lower, and volatility, as measured by the CBOE Volatility index, was flat on Friday and down sharply during the week. If traders are fearful the next big move lower is near, they should be buying volatility, not selling it. This could change.

I recommend shifting to aggressively short on any close below critical support for the S&P 500 at 4,080. That weakness would open up the possibility of a quick move back to the 3,810, the May low.

That said, if stocks start the coming week higher, the odds are good bulls will push toward the 50-day moving average, now at 4,250. One sign that this could occur is the large number of stocks that have simply stopped going down on bad news.

SA TradeView: Our ProShares UltraShort S&P 500 (SDS) position rose 3.2% Thursday to $43.62. For now, the strategy is to close the position for a profit into near-term weakness for the S&P 500. Target remains $45.30; stop is $42.00 (after 11 am ET).

The Upshot

The Dow (^DJI) fell by 1.1% on Friday to 32,899.70 and the Nasdaq (NDX) was 2.5% lower at 12,012.73. The indexes ended the holiday-shortened week lower, with both the Dow and the tech-heavy Nasdaq dropping almost 1% while the S&P fell by 1.2%.

Consumer discretionary and technology were the steepest decliners, with energy the only sector logging gains. The US ten-year yield rose by 3.3 basis points to 2.95%; getting up there. West Texas Intermediate crude oil futures rose $3.53 to $120.40 a barrel.

Breadth favored decliners three-one, and there were 95 new highs vs 110 new lows. Big caps on the new high list included ConocoPhillips (COP), EOG Resources (EOG), Enterprise Products Partners (EPD), TC Energy (TRP), and Marathon Petroleum (MPC). Nonfarm payrolls grew by 390,000 in May, above the 325,000 jobs increase expected in a survey compiled by Bloomberg. Private payrolls rose by 333,000, above expectations and following a 405,000 gain in April.

The unemployment rate remained unchanged at 3.6%, compared with the 3.5% rate expected. The labor force expanded by 330,000, and the labor force participation rate slightly rebounded but remained below its pre-Covid level.

The lack of movement in the unemployment rate is encouraging, but it is hard to say if this will continue, Jefferies said in a research note, adding that at the current job growth rate, the remaining labor market slack—estimated to be around 1.4 million—will be fully absorbed by September. "There will be virtually no one left to hire" at that point, Jefferies economists said, adding that employment growth has to slow down significantly or wage pressures will continue to intensify.

In company news, Tesla (TSLA) shed over 9%, the steepest decliner on the S&P 500 and the Nasdaq, after a coalition of advocacy groups opposed Elon Musk's planned $44 billion acquisition of Twitter (TWTR), arguing that the social media platform's content moderation safeguards would be eroded under his ownership, CNBC reported. Twitter shares were 0.7% higher.

The carmaker also received an information request letter from the US National Highway Traffic Safety Administration after the regulator said it received 758 reports of unexpected brake activation related to the company's Autopilot driver assistance system, according to media reports. Tesla has until June 20 to answer the regulator's questions.

Tesla has downshifted from prima donna to pariah in record time.

Learn more about Jon Markman here...