Markets got off to a shaky start to the week and the second quarter, as strong economic readings raised concerns about if and when the Fed will be able to start cutting rates.

Despite growing nervousness around the timing and magnitude of Fed rate cuts this year, markets closed out a challenging week on an up note, treating the strong jobs report as an indication that economic growth, and thus corporate earnings growth, remains on a path higher, which should offer broader support to the bull market.

The positive stock-market reaction could be interpreted as an indication that the market is still assigning some probability to the economy continuing to hold up alongside a downtrend in inflation that is sufficient to allow the Fed to cut rates this year.

For the second week in a row, oil and gold posted solid price gains, extending a run of recently strong results for both commodities. U.S. crude oil was trading at nearly $87 per barrel on Friday afternoon, up from $83 at the end of the previous week and $71 at the start of 2024. Gold spot prices on Friday were around $2,345 per ounce, a record high.

As U.S. stocks fell particularly hard on Thursday, as the Cboe Volatility Index which tracks investors’ expectations of short-term market volatility, surged to its highest closing level in more than five months. The Cboe Volatility Index subsequently pulled back slightly on Friday but nevertheless closed about 23% higher than the previous week.

Also, from a valuation perspective, most valuation measures indicate that U.S. equity markets generally seem to be on the more expensive side rather than close to fair value, which would call for a bit more caution at this stage. In addition, a look at investor sentiment shows that while sentiment hasn’t reached euphoric levels yet, there are clear signs that plenty of optimism has already been baked into markets.

What does all that mean to short-term traders? Volatility should be on the rise and trading focusing on the technical patterns and indicators with intelligently placed targets and stops will be vital in the days and weeks just ahead.

And remember, trade what you SEE not what you think!

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