What To Expect From this Earnings Season
The market blasted higher yesterday as the bulls built on last week's positive rally. To my delight, the leaders yesterday were small caps, which posted a 4.2% gain, compared to 3.5% from the market. And within the market, financials were a leading sector, up 5.1%, yesterday.
Leadership from the small caps and a recovery from the banks are two of my keys to a successful rally. The third component of a successful rally is a falling currency. And yesterday the dollar fell by 1.5%, which is a huge move, and mostly the result of a 2% increase from the euro.
The bulls are firing on all cylinders. And as long as two of the above three trends remain in force; I will continue to be long biased in our portfolio. Although, current positions SYNA and PLCM, have had their stop loss levels risen drastically.
The bulls were also able to take out 1175 resistance yesterday and challenge 1197. Buyers will need to keep SPX above 1175 today and tomorrow; but they are in a great position to do so. And if buyers can defend 1175, then we can expect another rally back to 1250.
Earnings season officially begins tonight with Alcoa (NYSE: AA), as usual, leading it off. And with the stock market decline over the past two months, this earnings season promises to hold a few extra surprises. Although the earnings announcement from Alcoa will presumably tip us off a little bit as to whether those surprises will be good or bad.
Alcoa provides aluminum for a number of industries including, construction, automobile and consumer products (like soda cans). Its broad ranging industry exposure can provide investors with clues in business spending, consumer spending and the potential for price increase for goods. Accordingly, Alcoa financial results can often give a great glimpse of the economic health of the U.S.
The investment community is clearly bearish heading into earnings season. But I think that negative sentiment is an oversight. The global economy did slow down, and European fiscal problems have escalated, but corporate profits are near a record high. And stock valuations are near historically low levels.
Although analysts revised earnings estimate down from previously optimistic levels, let's keep in mind that last quarter 70% of reporting companies beat estimates. While a weaker economy over the past year may slow profitability growth, analysts will often underestimate the resilience of corporate America.
I would be surprised if Alcoa blows estimates away. And I actually lean towards a negative earnings release from the aluminum producer. But marketing wizard, Google (Nasdaq: GOOG), and big bank, JPMorgan (NYSE: JPM), report later this week, and I expect both will surprise to the upside. If we get good news from those guys this week, and Bank of America (NYSE: BAC), Goldman Sachs (NYSE: GS) and Citigroup (NYSE: C) build on the positive earnings results next week, SPX could hit 1250 quickly.
As many of you know, TradeMaster portfolio filled up on long positions early last week. While I decided to take 9% and 13% off the table quickly from MOS and ALGN, it carries four other open positions that currently sit with double digit returns in less than a week - two of which are 20% gainers.
For more information on the TradeMaster Daily Stock Alerts trading service, which continues to beat the market nearly every month, please click here.
