Earnings season has officially kicked off with Alcoa ($AA) reporting their earnings after the close today. Some analysts weren’t very optimistic as a downgrade was handed out before the markets opened this morning. Deutsche Bank cut Alcoa’s rating from a hold to a sell and as a result, the stock sold off 7% ahead of earnings. We have about 2-3 weeks of earnings before Wall Street can really get a sense of what’s going to happen this quarter with earnings. It will no doubt be a volatile time.
Keep in mind that this recent bull run we’ve seen has been, at least in part, due to the belief that earnings this quarter will be bad. However, we also need to realize that if earnings start coming in worse than all the lowered expectations, we could see a test of the lows. That test could be (more like will be) exacerbated if the forward looking statements are grim as well. Keep an eye on the put/call ratio of any stock that you trade as that will give you an idea of the sentiment for that company. Also, check your earnings dates on any open positions and make sure that you either get out or have the appropriate protection in place.
This week could be a pivotal week as we have several key economic events and the start of earning season. The biggest economic events will be the retail sales on Wednesday, the Producer Price Index (PPI) on Thursday, and the Consumer Price Index (CPI) on Friday. We are currently sitting at support in the broader market ($SPX) and we broke though the 50 MA today. The silver lining for the bulls is that the volume was light and we are at support.
Tomorrow we get the trade balance, economic optimism; the Federal budget balance and some Fed speak from Bernanke and Lacker. On the earnings front, LLTC is the only S&P 500 company reporting tomorrow.