Earnings, Phase 2 On Deck

In this week’s Barron’s Michael Santoli noted the following trend in previous earnings seasons:

“…it’s not uncommon for earnings season to play out in two offsetting phases, with the first half (just completed) resetting expectations in a way that leads to them to being upended in the back half.”

That lines up well with my S&P 500 chart this past weekend.  I still see a pull back coming and Santoli might have the second half of the puzzle pin pointed here.  With consumer confidence coming in lower this morning, stocks have started a small pull back.  The trick to watch will be to see how far it goes.  On the other hand, new home sales came in better than expected yesterday, so pick your day to be bullish.  It changes frequently.  The Williams %R indicator I reference in my charts still shows momentum for the bulls.  Keep watching it through the week.

What I could see happen is that those still working can keep the economy afloat while companies have already cut costs to where they’re making a reasonable profit again.  Eventually (Q2, 2010?) companies will have to move forward on new projects as equipment wears out and technology advances call for new purchases.  With that will come the hiring and a real recovery.  Downside risk might still be limited if we can keep idling along where we are now.  The second half of this earnings season will determine if the profits are spread throughout the economy. 

I’m still looking for new trades to make, but remain patient as possible.  I’ll have another “Stock Picks” post soon, so send me your ideas if you want a link back to your blog.  You are welcome to just add a comment when I get the post live too of course.