EPS 'Showtime'...

In a way, we’re glad the World Cups is over and we can finally get back to the other "beautiful" game called the stock market!   Ok, calling it beautiful may be too extreme, this market game just doesn’t follow a game plan and/or coached script.   This earnings season may just prove this to be another case, where what you expect is not what you get.

So, once again, we come upon the beginning of an earning season and so starts the expectation game.  AA,  officially kicked off earning season and reported #'s that beat downward revised expectations.  More importantly for AA/ sector, they are forecasting an increase in demand as well.   CSX , NVLS, helped spread a decent AMC mood with upside reports.    The AA stock price, before the announcement, is near the low of the year and this is GOOD for the market.    Here's the thing, despite the bounce of the last few trading days, many plays that are supposed to be the barometer of the Economy are still way down on the year.    What it means is that a lot of pessimism and caution are priced into this particular earning reports for those companies that represent the Economic progress.    To be more specific, many of the commodity and material stocks are the ones that are priced here to show some dismal numbers and outlooks.    Yup, that's right and that's the expectation of this market.   Basically, everything from AA to X are "supposed" to show some weakness in their end demand to further strengthen the belief that the Economy recovery is nearly over or stalled.    This is what we feel the market's expecting, based on their stock performance since April.   Now, question is, what will these companies really show?   What if the Economic recovery isn't as robust as people expect, but nonetheless on track?  A ha, that means some people who are hoping for a double dip scenario may be in very big trouble.   Still, despite the AA report, we're in no way thinking this cleared up the waters.   Just today, steel related equities got smacked (>4%) on China export #'s and possibility of domestic price cuts.   We need to see more 'individual reports' in the days to come to get a better read here on the commodity related names. (especially steels)
  
What about those stocks that instead already carry a high expectation coming into this eps season?   Plays like APKT, FFIV, SNDK etc. and essentially many of our favourite tech plays here are heading into this earning season with very high expectations.    We can draw this conclusion simply by looking at some of the price levels of these plays.    Yup, it's that obvious!   We just can’t be sure what type of reactions these plays will receive after their results.   The results that appear good may not be enough unless it's a total blowout.   What it means is that we are going to be very selective and patient with these tech plays and avoid chasing an initial spike if it comes off a report.

As always, Financial/ Material sectors can provide a spark for a rally if their reports are well received.  Favourite such as INTC, AAPL can also be ammunition for bulls to take a charge here.    Bottom line, bar has been set pretty low for this eps season in many respects, so the chance of 'better than expectaions' could just be enough for the Bulls as often the case with Economic data.

As far as today's trade,  the one thing to takeaway is the what we layed out the other day.  The Bulls won't chase,  but will gather and buy the dips once again.   We clearly saw this again as market filled to the technically watched 1068 level.