Corporate Earnings Season, And They're Off...

Stock-Markets / Stock Markets 2010 Jul 13, 2010 - 01:42 AM GMT

The earnings season is upon us and tonight we saw the first important group of stocks report. The two most important being Alcoa, Inc. (AA) and CSX Corp. (CSX), a leading railroad shipper of goods. CSX said things weren't bad at all. Not exactly knocking the ball out of the park but nothing bad. At the time of this writing I've watched CSX stock go up a dollar after hours, then reverse two dollars to go red by one, and then back to slightly up. In other words, the market doesn't know what to do with this report. As if the market wasn't difficult enough, we're now seeing traders clueless on what to do with this puppy. Ridiculous really.

The report showed CSX beating the street yet they said things going forward didn't look bad. Would have thought better but for now it's fairly flat. Remember, all that matters is how the market reacts to what it hears, not necessarily what we would think should take place. My gut says it moves higher on the news, but it will be an interesting watch.

Alcoa, Inc. (AA) said things improved, but they did so only because they had to lower their prices. The lower prices gave them demand but that doesn't mean that demand is going to be put to use immediately. Remember, they had to lower to get demand. If things were rocking then they would have had pricing power. They told us they did not and do not for now. So the first night sent a mixed message. Not really great stuff from Alcoa, but certainly better guidance from CSX.

We started the day with the market moving ever so slightly lower but nothing to really talk about. You could see that overbought was basically going to stay that way on the short-term charts. The market participants were simply waiting to see what would come from the earnings that came out tonight. The market flat lined throughout the day. All rallies were sold and all selling was bought, which gave us an overall flat close, although in the green. Fractional percentage gains.

The bulls can feel good about holding at overbought while the bears can say that the bulls still haven't taken out critical resistance. Truth is it all falls somewhere in between. Neither side is showing full control of things but you have to give the nod to the bulls as they were able to hold the bears at bay, while the markets tried to unwind from overbought on those short-term 60-minute charts.
First important support for the S&P 500 is at 1034 followed by long-term line in the sand at 1010. Resistance comes in at 1090 and 1093, which is the down trend line and then the 50-day exponential moving average. Anything in between is just noise in the pattern.

The real problem has been that even when we break out or down the move doesn't hold very long due to some excuse such as oversold on the daily charts. Very little to trust here. Just watch 1093 top side and 1034 down side and then ultimately 1010.
The earnings season is critically important. It will direct this market to move down or up significantly. Let's face it, markets move on earnings and sentiment. Sentiment is clearly on the side of the bulls but nothing is more important than real earnings. If they are good over the coming days and weeks then this market should make the move over 1093 with force.

With the like Intel Corporation (INTC), JPMorgan Chase & Co. (JPM), Citigroup, Inc. (C), Bank of America Corporation (BAC), and

General Electric Co. (GE) earnings out this week, it's not going to take long to get our answer about where this market wants to go. It's getting overbought again on those short-term charts, but after some further unwinding, we may be dealing with a move up and out if the earnings on these stocks rock them higher. Too early to say what will take place, but the big earners that cane make the next strong move are out there. Very interesting times. The next week should tell the tale.

Peace,

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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