Like a middle school high jumper, companies are getting plenty of credit this earnings season for clearing very low bars.

While short-lived, yesterday's pullback had purpose. Along with the sideways fade over the past week most of the major indices were able to work off an overbought condition.

Despite the fact that the six major U.S. banks have been on the rise for nearly four months now, their stocks remain risky long-term buys.

Goldman Sachs (NYSE: GS) isn’t the Golden Goose it once was. Employees of the investment banking giant found that out the hard way yesterday.

With weak earnings from the banks and minimal economic data to embrace, I took a bearish position yesterday.

Earnings season hits full stride this week, and it could be a very critical week for the bulls.

The market recorded another gain yesterday as the indices continued to consolidate after the big open to start the week.

The increase in volume was excellent to see yesterday, and that increase in volume added further conviction to the bullish move higher past 1280 resistance.

I argue in favor of a bullish advance past 1301 resistance and this week could very well be the start of that move. 

Chairman of Goldman Sachs (NYSE:GS) Asset Management Jim O'Neill discusses what he calls the January 5-Day Rule...

This week's data may not indicate too much about the U.S. economic recovery, but it was good enough to support bank stocks...

If you're looking for yet another reason to own physical gold, look no further than the unbelievable situation that continues to unravel with the MF Global debacle.

The movement in the indices over the past month has been anything but crystalline.

The euro has fallen sharply lower by 3% this week, which has corresponded to a similar rise in the dollar. The rise from the dollar brought havoc to the commodities and stock market alike.

Regional banks simply make sense. They are not too big to fail. And that's a good thing.

Bank stocks, and the other indices for that matter, will have to overcome some heavy bearish news today.

While investors should be wary of the bank sector as a whole, there is one bank that I believe will rise above the rest.

A big market rally will likely be led by financial stock.

If two of these three trends don't take place, neither will a market rally.
 

Every bank stock was higher, and most rose twice as much as the average stock from other sectors.

The latest rally in the market was initiated with optimism that Europe would come up with a plan, quickly, that increases investor confidence, avoids default and recapitalizes banks.

Apple's (Nasdaq:AAPL) quarter wasn't horrible. The tech company reported earnings of $6.62 billion, or $7.05 a share, on $28.27 billion in revenue. For comparison's sake, Apple earned $4.31 billion, or $4.64 a share last year, and that was a blowout.

Goldman Sachs (NYSE:GS) Chief economist, Jan Hatzuis is forecasting 0.5% GDP growth for the first quarter of 2012. He also predicts that the Fed will announce QE3 in the next 6-9 months.

We knew bank earnings wouldn't be good. Analysts have cut their estimates for Citigroup (NYSE:C) several times over the last month, by an average of about 20%. So maybe it's a good sign that Citi beat expectations handily...

Apparently Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) may both shed their "bank holding company" status to avoid Volcker rule restrictions and get back to the good ol' profitable trading game.

The market was slammed yet another time yesterday. Although unlike Thursday and Friday, the indices recovered into the close.

Once again financials led the charge lower and the big banks like JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Goldman Sachs (NYSE:GS) and Citigroup (NYSE:C) were down 3%. Energy and technology components were also hurt and stocks like Microsoft (NASDAQ:MSFT) and IBM (NYSE:IBM) were down 1% and Exxon Mobil (NYSE:XOM), Apache (NYSE:APA), Continental Resources (NYSE:CLR), which we're short, and Halliburton (NYSE:HAL) were down 2%.

The market slumped lower yesterday and the bulls lost their four day winning streak. Volume was low in the decline, as it has been for most of the week.

Financials were the big losers yesterday; bank stocks, including Bank of America (NYSE:BAC) JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), Citigroup (NYSE:C), Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS) were all down more than 3%.

The market salvaged a gain yesterday, but it was an unenthusiastic win for bulls. Volume was up, but that was about the only good thing I could say about yesterday's price activity.

Banks and oil stocks sank and the rest of the market muddled through the afternoon in an uneventful session.

In the morning, pre-market, the indices were poised to record a huge (positive) day. And the indices, along with just about every stock (up to down volume 15 to 1) was up in the morning.

Yesterday I discussed a brief history of Keynesian monetary policy, and how it is becoming increasingly difficult for our Government to maintain their policies further.

The problem is too much debt.

And while there's no way for anyone to wipe this debt clean or pay it down with higher taxes, lower spending, etc. - it will be taken care of. And as I said yesterday, it will be passed onto EVERYONE who owns dollars and dollar denominated assets.

In 2008, we knew that the mortgage-backed securities depleted the cash reserves at banks to the point that they were insolvent. In January of 2010, it was the uncertainty of Greek sovereign debt along with other European countries that caused a very sharp pull back for stock prices.

But it's more difficult to find a culprit for the declines we've seen lately.

Yes, there have been weakening economic data, to the point that GDP growth may be below the 2% line. That's close enough to negative growth that some are throwing around the "r" word: recession.

JP Morgan (NYSE:JPM) turned in a very solid second quarter earnings report this morning. Revenue was $2 billion better than expected, at $27.4 billion. And earnings were $0.06 better than expected, at $1.27 a share. This was the 11th consecutive quarter that JP Morgan has beaten.

You'd think analysts would be able to adjust their estimates to account for the consistent out-performance at JP Morgan. And truth be told, they probably are.

But there are so many little things the company can do to get its quarterly numbers that analysts have little chance of nailing it.

Well, Alcoa (NYSE:AA) managed to meet on earnings, and beat on revenue. All in all, I'd say that's pretty good. I'll also say it's a darned good thing Alcoa came in good. After a day like yesterday, investors needed some good news, or at least some "not bad" news.

The S&P 500 dropped below support at 1,320, though only by a point. Volume wasn't particularly heavy, so we shouldn't read too much into the 1,319 close. In fact, yesterday had all the makings of a bear trap: negative headlines, a drop through support, right at the outset of earnings season.

Of course, we will need to get some more positive earnings news to turn the tide. And we will have to wait for Thursday when JP Morgan (NYSE:JPM) and Google (Nasdaq:GOOG) report.

Now, here's some reader mail.

Over the weekend, new capital requirement rules for large banks were finalized. Known as Basel III, these rules will add as much as another 2.5% to some banks Tier 1 capital. That brings the total to as much as 9.5% for banks that are deemed to be too big to fail.

These new rules are designed to keep banks from over-leveraging and causing a repeat of the financial crisis. But it should also be clear that even a 9.5% Tier 1 capital requirement is not a big requirement. Banks will have no trouble raising their Tier 1 capital to the new levels by the 2019 deadline.

In reality, this is a token move and won't affect the banks much. It definitely doesn't do much to prevent another crisis. But it may be good news for banks stocks. One reason for the recent weakness in bank stocks is uncertainty of new financial regulations. With this Basel III agreement, some of that uncertainty is removed.

The U.S. dollar and Treasury bonds are weaker today after the Group of 8 said the global economy was growing and the perception of Greek debt problems improved.

 

As we know, a weaker dollar sets the stage for higher stock and commodity prices. Oil is perhaps the best indicator of economic growth expectations. And its inverse correlation to the U.S. dollar is also airtight. So much so, that if you see oil rally, bullish economic commentary is usually not far behind.

The fact is, the stock market rarely sells off for one reason. The issues from Greece might be making all the headlines, it's not the only catalyst. Economic data has been weakening, the end of QE2 is looming, government spending is likely to get reigned in, albeit slightly, and the stock market has been on a remarkable run since last August.

My belief as a researcher and an analyst is that undue speculation in not just the copper market - but nearly every market, including the stock market, currency markets, the bond market, etc. - my belief is that this speculation is being fueled predominately if not completely by the actions of the Federal Reserve. 

The Fed has a mandate, for better or worse, constitutionally or unconstitutionally, to maximize employment and keep GDP growth slow and steady. And now we're seeing the breadth of their power to implement those two goals - they can simply transfer "dollars" from out of thin air into the bond market, into the financial system, into the mortgage market. Those dollars have to go somewhere. Goldman Sachs (NYSE: GS) isn't likely to sit on billions of dollars - they'll put it to work speculating. The same is true of all of the Fed's member banks.

As we saw with the oil markets between 2008 and 2010, when the bets turn against the speculators, the price tends to drop to ridiculous lows. Looking at a copper chart, the same thing happened there too.

If you look at "pretax, pre-provision profits", which excludes taxes, loan loss reserves and one-time items, profits fell 40% year over year. That's clearly not a good trend for the banks. So how did banks post such good "headline" profits? Loan loss reserves, as we have discussed. Banks have been aggressively moving loan loss reserves back to the asset side of the balance sheet. And that's accounted for the lion's share of 1Q earnings. It also leaves the banks less protected if the economy tanks again...

The bears' futile attempts to take stock prices lower have been good sport to watch. The first level of support on the S&P 500 is 1,280. The S&P 500 has closed above that level every day since January 12. That's 8 straight days.

Even last week, when it looked like a correction was looming -- after stocks sold-off on the good news from Apple (Nasdaq:AAPL) and IBM (NYSE:IBM) -- the S&P 500 fell all the way to 1,271. But it didn't close there.

So far this earnings season, we are seeing a clear separation between two of the stock markets leading sectors Starting with Intel (Nasdaq:INTC) and continuing with Apple (Nasdaq:AAPL) and IBM (NYSE:IBM), technology earnings were fantastic in the fourth quarter.

But it should be clear that banks are still grappling with the loss of mortgage business and the fallout from the financial crisis. And quite simply, while the climate for banks has certainly improved, as a group, they are not going to return to the growth they enjoyed in the last decade anytime soon.

2011 is starting off with a bang. Stocks are up big today. And the catalysts are coming from every angle. China's manufacturing index is expanding, despite measures to slow inflation, Bank of America (NYSE:BAC) settled some of its mortgage put-back exposure, oil is higher as growth expectations improve, price targets for Apple are higher, and China has said it will continue to buy Spanish debt.

Each of these news items I've listed addresses an important point of uncertainty. If China can grow its economy at the same time it attacks inflation, then the global economy continues to enjoy Chinese demand for raw materials. That's a clear benefit for resource economies like Australia and Canada, and even benefits American and German exports.

Currencies don’t trade in a vacuum. They trade based on relative value compared to other currencies. In other words, if you want to buy Japanese yen, you usually have to sell whatever currency you have to make the conversion.

 

So if the U.S. dollar is weak, it’s usually a good idea to see what else is going on in the world, rather than assume the dollar is trading on U.S. data alone.

We are in the final stretch before Christmas. Yes, the blatant commercialization of a great holiday gets old. But it never manages to dampen my Christmas spirit.

Online sales are up 12% over last year. And brick and mortar sales are coming in strong too. SpendingPulse reports that clothing sales are up 9.8%, jewelry's up 2.6% and furniture sales are up 3.4% over last year.

It’s looking as though U.S. stocks made an important low yesterday. The S&P 500 fell below February’s low of 1044 and then made a powerful reversal to close at 1,074.   

 

Leading the way was Goldman Sachs (NYSE:GS). It put in a low at $134.20 and closed the day at $142.56. Today it’s up another $2 or so.   

 

This powerful reversal move by Goldman is significant for a couple reasons. One, it’s something of repudiation of the idea that financial contagion is spreading from Europe to the United States. And that fear has been driving stock prices lower over the past couple of weeks.   

During the depths of the financial crisis, Warren Buffett plunked down $5 billion dollars on Goldman Sachs (NYSE:GS). It’s reported that this investment has returned nearly $4 billion as some sense of normality has returned to Goldman’s valuation.   

 

Also during the financial crisis, Warren Buffett sold put options on the S&P 500. A put option is a contract that allows an investor to buy or sell an asset at a certain price on or before a specific date. So when Buffett sold put options on the S&P 500, he agreed that if the S&P 500 falls below a certain level, he will pay out.   

 

Reports are that Berkshire Hathaway could be dinged for as much as $63 billion if these put option contracts go against Buffett. But it’s also reported that Buffett took in $9 billion when he sold the puts.   

Before May, there were plenty of investors wondering if the stock market had gotten too far ahead of the economy. Sure, stock valuations themselves have stayed within historic norms, supported by strong earnings growth.

 

But with unemployment stuck at persistently high levels, ongoing imbalances in the economy, and record high budget deficits, it’s reasonable to wonder how long earnings growth can continue. Now, after the debt issues with Greece have revealed some serious dissension in the European Union and questions about the future of the euro as a currency, we’ve seen an abrupt reversal. 

At last week’s lows, the S&P 500 was down 9.6% from its highs. Oil prices are down 20%. 

Just yesterday, we discussed how stock market plunges can be set off by what amounts to a “global margin call.” And that’s exactly what yesterday’s decline felt like, as the selling was relentless.  

 

There were no bounces, no dead-cat rallies as the selling built pressure built until it reached its crescendo.   

 

That crescendo, a 998-point spike lower on the Dow Industrials, was caused directly by some computer-based trading programs gone haywire. (There’s no other way to explain how Accenture (NYSE:ANC) could drop from $40 a share to a penny.)  

The Russell 2000 (NYSE: IWM) and the Dow (INDU) are below the flat line after two days of strong gains.

At 10:38 a.m. ET, the small-cap index had lost 3.69 points, or 0.45%, to 813.71. The Dow Jones Industrial Average had shed 24.80 points, or 0.18%, to 13,790.76.

Speaking to Congress this morning, U.S. Federal Reserve Chairman Ben Bernanke told lawmakers that the recent financial turbulence stems from the troubled subprime mortgage sector, “but the resulting global financial losses have far exceeded even the most pessimistic estimates of the credit losses on these loans.”

The result, Bernanke said, is that “recent developments in financial markets have increased the uncertainty surrounding the economic outlook.”

Nevertheless, he said the overall financial system remains strong.

News of those remarks cast a dark cloud over Wall Street and stocks fell out of the gate, since recovering some of their losses.

Contributing to the bearish sentiment this morning, financial services giant Bear Stearns Companies Inc. (NYSE: BSC) reported that its profit fell a whopping 61% in the third quarter due to its investment in securities backed by subprime mortgages, marking the company’s worst quarterly performance since 2006.

On the other hand, Goldman Sachs Group, Inc. (NYSE: GS) announced that its quarterly earnings soared 79%, easily outpacing Wall Street’s projections. Profit for the three months ended Aug. 31 was $2.85 billion, or $6.13 per share, while analysts had forecasted a profit of $4.35 per share. The New York-based investment bank had a net income of $1.55 billion, or $3.26 per share, a year earlier.

In economic news, the number of American workers filing for unemployment benefits fell to the lowest level in seven weeks, announced the U.S. Labor Department before the start of trading. Initial jobless claims for the week ended Sept. 15 fell 9,000 to 311,000, while economists were expecting claims to stay at their upwardly revised previous level of 320,000.

The four-week average dipped to 320,750, from 324,250.

The labor market has come in focus as fears of an economic slowdown have increased in the past few weeks, but today’s numbers show an unexpected improvement.

Overseas, Japan’s Nikkei 225 added a minuscule 0.2%, while in London the FTSE 100 let go 0.6%.

Elsewhere, a Philadelphia-area manufacturing survey will be coming out later today.

The Russell 2000 (NYSE: IWM) futures are sagging and the small-cap index will likely open lower despite good employment news.

The number of American workers filing for unemployment benefits fell to the lowest level in seven weeks, the U.S. Labor Department said. Initial jobless claims for the week ended Sept. 15 fell 9,000 to 311,000, while economists were expecting a more modest decline of 6,000.

The labor market has come in focus as fears of an economic slowdown have increased in the past few weeks. Today’s numbers show that the labor market remains strong.

Bearish news is coming out of financial services giant Bear Stearns Companies Inc. (NYSE: BSC), which reported that its quarterly profit fell a whopping 61% due to its investment in securities backed by subprime mortgages.

On the other hand, investment bank Goldman Sachs Group, Inc. (NYSE: GS) announced that its quarterly earnings soared 79%.

Elsewhere, U.S. Federal Reserve Chairman Ben Bernanke spoke to Congress this morning. The Fed chief told the House Financial Services Committee that the contagion from the subprime mortgage meltdown has spread throughout financial markets and could have negative consequences for the overall economy.

What if movies adapted to the digital age as music did? Download a movie anywhere, anytime, and watch it with any device whenever you want. The idea of going to a movie theater is already archaic to entertainment seekers who have home theaters or digital TVs with large screens. And DVDs get damaged and take up space – just like their CD ancestors.

The current turmoil in the movie world is reminiscent of the music industry just before Steve Jobs shook things up with iPod and iTunes. Consumers spurned the unwanted music bundled in discs with the tracks they did want. They revolted by using file sharing software to download individual tracks for free. The music distributing companies cried intellectual property theft. Eventually, the dust settled, and the music companies learned to live in the digital world. And Apple Inc (Nasdaq: AAPL) made pots of money, along with its shareholders.

In the Internet video world, something similar is afoot. Clever entrepreneurs such as YouTVpc.com and peekvid.com store movies in overseas servers and use file sharing software to let consumers download movies free. Hollywood is crying copyright theft.

But digital media is unstoppable; large video files are easy to distribute when they are compressed with technologies such as MPEG 4. And the broad acceptance of broadband networks makes the distribution of internet video files feasible.

April 13 (SmallCapInvestor.com) – Stocks closed the day in positive territory as an upbeat profit forecast from pharmaceutical giant Merck overshadowed an earlier report of a drop in U.S. consumer confidence.  In small cap action, shares of Medis Technologies Ltd. (Nasdaq: MDTL) rose on news the company made sales to Microsoft, while news of a buyout lifted Cutter & Buck Inc. (Nasdaq: CBUK).

The Russell 2000 rose for the second straight day, adding 4.33 points, or 0.53 percent, to 819.38.  The Dow Jones Industrial Average rose 59.17 points, or 0.47 percent, to 12,612.13.