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July 1, 2010  Thu 1:05 PM CT

SPX: SEE CHART GET CHAIN FIND STRATEGIES

As we head into the late afternoon, the indexes have come well off their lows of the day. This may well be covering ahead of tomorrow's all-important Employment Situation report, following a major whack in the markets this week that has erased year-to-date gains and then some.

Undoubtedly many will view this as a buying opportunity, and that could well be the case for the nimble. Auto sales numbers today were not as bad as some had feared, which has helped sentiment and allowed the transportation components to rise against the crimson tide.

SPX ChartIf you sensed a "but" coming, you would be correct. If the employment data due at 8:30 a.m. ET tomorrow were out of the way, the situation would be a lot less complicated. We have to remember that, other than auto sales, every metric in U.S. economic data not only came in weak, but weaker than even the most pessimistic forecasts. It has been a long while since this has happened.

We face even more complexity in tomorrow's report. Remember that the ranges in both the headline number, which everyone expects to be sharply negative, is incredibly wide. At one end, losses of -200,000 payrolls are expected; at the other, a gain of 30,000. That is a range wide enough to pilot the USS Saratoga through.

The real devil will be in the details of the private sector payrolls. Again, the range is huge, from  gain of 22,000 to 200,000. With this much uncertainty in the numbers and a harsh series of disappointments already handed out this week, it will be harder than usual to judge how traders will react.

One potentially worrisome note is that expectations for payrolls have actually nudged up a hair to 112,000 this week. That gives us one heck of a target area. But if it happens to hit that level or higher, a rally would almost certainly be in the cards.

One more thing. For many traders, today may well be the start of the long weekend for the July 4 holiday, which could dampen any effects of either a positive or a negative number. In short, the action is more likely to be skewed and stay that way, with the bulk of trading early.

If that isn't enough to keep us all on our toes, we also have Factory Orders to look forward to at 10 a.m. ET.

(Chart courtesy of tradeMONSTER)

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