There goes the rally: how much of a giveback? After rallying 14% since the June 16th bottom, bulls seem like they are on the defensive. The jobs report forced bulls to concede the Federal Reserve will not back off on its rate hike march. "The big headline gain in jobs was a surprise and could convince people like San Francisco Fed President Mary Daly that the economy needs another 75 basis point hike at the Fed's next meeting," Jeffrey Roach, chief economist for LPL Financial, said in a note to clients on Friday. But the pain trade (what will cause the greatest pain to the most traders) may be the opposite: the risk may be for the market to keep rallying. Let me explain. The rally from the June 16 bottom was based on the Goldilocks scenario: at worst a mild recession and the Fed halting further rate hikes in 2023. Bulls now have to concede that the inflation story is still not going their way. Commodity inflation may be moderating, but wage inflation is far stickier, and job growth remains strong. How much further can you push the rally when it looks like Fed officials have been right? They're going to have to keep raising rates, which increases the chances of a more severe recession. But a funny thing happened on Friday: there was no selloff to speak of . Oh sure, a few tech stocks dropped 1% or so, but compared to the recent rally (Technology is up 16% since bottoming June 16th) it was small potatoes, and the volume was very light. Trading in all the major tech stocks and tech ETFs was well below average, and don't tell me "It's August." After the rally we have had, if investors really believed the news was really bad, there would be sellers. But no one was rushing for the exits. This gave cheer to the the bulls. What does it mean? The jobs report "may have reset the market's countdown clock for an upcoming recession," DataTrek's Nicholas Colas said in a note to clients Monday morning. That's why we saw the market hold up Friday. The upside to the rally may be capped by inflation uncertainty, but the downside could be capped too because of the continuing strength of the consumer. Big inflation report ahead Which brings me to Wednesday's CPI report. On the surface, this looks like another ugly print for the bulls: the headline (year-over-year) print expected at up 8.7%, not much better than June's 9.1%. Hourly earnings also expected strong, up 5.2%. So based on what happened to stocks on Friday, what do stocks do with the CPI report? This gets to my point: that the pain trade is for the markets to rise on the report. How would that happen? If the headline data is stronger than expected, no one argues there will be a selloff, but the question is, how much? Today's action suggests that given strong jobs, the selloff might not be as severe as bears might hope. But what if the numbers are a bit weaker than expected? Commodity prices are lower, and another critical component of inflation — housing — also shows signs of weakening. In that scenario, we would have strong jobs growth, with more moderate inflation. That is a recipe to resume the rally. You have to admit, this is a very strange setup, and it is making a normally boring August look much more interesting.