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We are about 25% of our way through earnings season with 132 companies in the S&P 500 having reported earnings to date.  The non-financial sectors appear to be holding up well this season, supporting the +10.9% move in the S&P last quarter. 

  1. 113 or 85% (80.9% for all of 2Q10) have posted positive surprises on EPS - the Industrials are the only sector with a perfect batting average  - 23 of 23 companies have beaten on EPS
  2. 87 or 66% (57.8% for all of 2Q10) have posted positive surprises on Revenues.  

Not surprisingly, we are seeing the cream of the crop get the good news out first and would expect the tone of earnings season to deteriorate from here.  This is an important factor to keep an eye on; as positive as earnings have been, a reversal in tone could have strong implications given how high this market has run.

In addition there are two important MACRO data points out next week:

  1. The BEA is expected to release the advance estimate of 3Q GDP on Friday, October 29th.  There is a significant chance that this GDP report is close to consensus expectations as it is the last major piece of economic data before the midterm elections.  The economic data reported of late suggests that.  However, reporting risk remains for a downside surprise to those expectations and here is why: 
  2. We expect the Case/Shiller print on Tuesday next week to decline sequentially and to show acceleration in the downward trend.   That said, the “bomb” print won’t be for another month when the April data, and with it the last impact of the home buyer tax credit, finally comes out of the calculation. 

We’re short the SP500 (SPY) and our refreshed immediate term TRADE line of resistance is now 1187 and there’s plenty of resistance all the way up to the YTD highs established in April during the frenzy of the 1Q10 earnings season.   

Enjoy the weekend,

Howard Penney

Managing Director

Bear/Bull Battle: SP500 Levels, Refreshed...  - 1