What Will Earnings Season Have in Store?

Scott Redler
October 9, 2012

US stock futures now point to a higher open, rebounding from overnight weakness. The IMF released its World Economic Report in Tokyo this morning, citing lower growth prospects and higher risk of another recession while pointing specifically to the European debt crisis and impending US fiscal cliff. They cut 2012 growth targets to 3.3% from 3.5% and 2013 targets from 3.9% to 3.6%. At least pre-market, stocks don't seem to care.

Investors are also bracing for earnings season, which has some of the lowest expectations in recent memory. Alcoa (AA) generally marks the unofficial "kickoff" of earnings season, and the aluminum giant reports tonight. Yum! Brands (YUM), the parent company of Pizza Hut and KFC among other franchises, will also report after the close today. On Friday before the open, banks JP Morgan (JPM) and Wells Fargo (WFC) report earnings.

Yesterday the market traded in a tight range due to the Columbus Day holiday after gapping down, but it was positive to see the S&P hold above the 21-day moving average. Holding the 1448-1452 is constructive to give another rally time to build. As we detail in the Active Trading Course, basing above key levels is a key to sustaining market rallies.

Tech continues to show relative weakness, headlines by Apple (AAPL). The iPhone maker has been a big drag ever since breaking its 21-day moving average around $683 on September 25th. For short-term traders, there has been some nice two-way action since the stock broke that level, with the most juicy trades coming to the downside. A Head and Shoulders pattern (albeit a sloppy one) did trigger when AAPL broke $658-660 with the measured move coming into the 100-day MA around $618-$622. That is next important level that bulls may try to defend. I would love to get a nice buyable set up into that zone as well. The short term point of reference now is yesterday's low of $636.

The Nasdaq ETF (QQQ) also has a bit of a Head and Shoulders pattern in the making. We need to see if its neckline serves as support or an action area that will trigger more downside. The $67.80-68.20 level is pretty big support that also coincides with the 50-day MA. A decisive break below this area and the measured move takes you down to $66ish. Let's see how this develops.

Oil, we we trade with the United States Oil Fund (USO) is higher this morning after Turkey reportedly hit Syrian Army positions late Monday in response to the shelling of a Turkish border town. Watch to see what this leads to in the oversold commodity. Gold (GLD) is mostly flat this morning and continues to hold above its 21-day MA.

*DISCLOSURES: Scott Redler is long JPM. Short SPY.