Earnings Rally Possible

retail rallyMarkets opened up with a rather aggressive rally and sustained for most of the day until an aggressive sell off occurred to close out the day. The Dow closed up just 5 points, however, the S&P ended up closing in the red. Good earnings reports from the tech and retail sector as well as a reduction in initial jobless claims helped spark the early buying.

As the low volume trading continues to occur in markets, these volatile end of day swings will most likely happen often. It doesn't take much at this point to move the market, which makes it very vulnerable to manipulation. Believe it or not, there are actually a few reasons I believe we may see this rally extend a bit further before a big pullback, and here is why.

First of all, there are a couple reasons to believe that we are in for a decent earnings season this next quarter. Just from my own business, I have been able to tell that consumers have been more active the past few months. With the help of trillions spent from the US government, some money finally became available to the consumer. As a result, some consumers were able to go out and spend this money thinking that the worst is behind us. It is almost like a sun spot in the middle of a storm. When you think about the lag time it takes for that money to actually reach the consumer, it makes sense that the economy is now starting to respond. As a result, I believe consumers got out a bit more this past quarter and was able to spend some of Uncle Sam's cash.

Another reason to expect good earnings is that there has been almost zero early bad earning warnings. If approaching a quarter where companies are looking to have much lower earnings than expected, they usually like to ease in the news by issuing a premature "warning" of lower earnings. However, when earnings are looking to beat expectations, well they always want this news to be reported as a surprise to help spark a run on the stock. The fact that we've seen almost none this quarter, leads me to believe that earnings should be relatively strong.

Considering the market is reacting very sensitively at this point to economic data, I think a strong earnings season could definitely bolster up markets for a bit. However, as I've said before, the numbers are skewed to a degree. Much of the money that has been spent is government money, which has to be paid back eventually. So although it may look like we heading up, I definitely expect to see some more rough times to come. However, retailers and real estate REITS should perform decently well the next couple months. We saw from Best Buy today, earnings are already looking good. Happy Trading.


  1. Anonymous Says:

    I think you just called the top. Bernake MUST crash the Stock Market in order to save the Bond Market. If the bond market crashes the western world will collapse.

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  3. Anonymous Says:

    FF It appears you have capitulated which is a must for all us realist/bears. We have no choice because the market just keeps on going. No matter the news, no matter the dip, they are buying. Bears are done. It is amazing though that everything that was so bad last year is perfectly fine now.The Governments plan has worked amazingly well. Can you beleive it? The only bear left is Robert Prechter. Full margin long!!! NO RISK!!! LOL.

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