Earnings Season

Next week will be the beginning of the earnings season.  We know that the 2nd quarter will not be that bad, because there have been few earnings warnings and the economy only started softening in June.  We also know that guidance is up to management to decide, and many will keep their mouths shut if they have nothing good to say.  One thing to keep in mind when watching earnings.  The market usually reacts to guidance, not the past quarter. 

In the chart below are the 4 past quarters highlighted.  What I can interpret is that the market usually makes its move in anticipation of earnings before the earnings are even announced.  Right now, the picture is a bit muddled because we had a huge selloff since April earnings, but have had a big rally this past week.  In general, it seems like traders are positive about upcoming earnings, not negative. 

I see very little room for a big rally now that we've already made a substantial move off 1006.  The strong thrust off the July 1 low means we'll likely not revisit those levels for a while.  There is probably a one month period of consolidation between 1040 and 1100 in July.   After that, a slow weakening of the market in August.  If the economy is weakening as we get to September, traders will be having 2008 flashbacks and we'll have panic selling in September down to at least 950.