European Promise, Earnings Season Lead to Resurgent Optimism

Scott Redler |

Perhaps another reason for a higher open this morning is anticipation of earnings season. While economic data has not accelerated to the point of a meaningful recovery over the course of the past two years, corporate earnings have repeatedly surpassed expectations. The market seems to get a boost from earnings season every time around, with corporations holding onto cash and cutting costs rather than hiring aggressively in this uncertain environment.

With increased automation and many jobs going overseas, this may turn out to be a jobless recovery, but American companies continue to prosper. The unofficial, but widely-recognized, start to earnings season is tomorrow after the close when aluminum giant Alcoa (AA) reports. On Thursday you will see bigger reports from the likes of JP Morgan Chase (JPM) and Googe (GOOG).

Technically, the market looks set to push towards the upper end of the lower range on strength of earnings and the European banking recapitalization promise. The "funny" thing is, over the past two months the market has sold several promises and pledges from European leaders that have not been immediately met with action. Europe has been taking steps to shore up its banking system for two years, and much of it has been in vain. Now, French and German leaders are promising to unveil a possible plan in a few weeks time, and the market is suddenly excited? Either way, the market seems to be in glass-half-full mode, and IBD says to look for a strong continuation follow-through day within 4-7 days of the reversal, which came last Tuesday.

The market has not closed a day above the 50-day moving average since late July, and we are approaching that level this morning. If we close above 1177 today on the S&P that will be another win for the bulls that should open the door to test the upper end of this lower range that stands at 1220-1120. A close above 1177-1195 will also break the series of lower highs, breaking that bearish pattern that has controlled the markets since we broke 1325 late July.

Unfortunately I don’t see a ton of stock leadership at this stage, but that can change with a strong follow-through day this week. A healthy market has leading stocks that are looking to bust out to new 52-week highs. But there is more than one way to skin a cat, and traders are now looking at stocks ready to break downtrends.

*Disclosures: Scott Redler has no positions.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
UBNK United Financial Bancorp Inc. 18.31 0.13 0.72 140,908
AA Alcoa Inc. 32.05 0.74 2.36 4,344,295
AAPL Apple Inc. 113.95 1.83 1.63 34,402,627
JPM JP Morgan Chase 85.49 0.37 0.43 14,567,202
GOOG Alphabet Inc. 789.29 12.87 1.66 1,821,914

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