IT'S ALL ABOUT EARNINGS

After a month of consolidation and a slight correction, the markets are looking at earnings season to determine where it heads next.  Earnings reports have started in earnest today and will continue throughout this week with 79 companies of the S&P 500 and 12 of the Dow 30 reporting.  This is one of the peak weeks and will drive the near term direction of the market.  To this early point, earnings have been inline with expectations and the market has responded with a positive yesterday and a good start to today.  The S&P pierced its 20 day moving average last week but looks to bounce back above with a strong showing today.  Key levels to watch for the S&P are 1419-1425 on the downside and 1465 on the upside.  A break below 1419 would likely lead to a much deeper decline back into the 1300s while a break to the upside would bring into focus the 2007 S&P high of 1565.

From a technical perspective, the recent action has been constructive.  A period of decline and consolidation within an uptrend provides the market an opportunity to rest and allow those sellers an opportunity to sell in an orderly fashion.  The market is set up for another move higher if earnings can deliver.  There are many wildcards (aren't there always!) with the economy, fiscal cliff, election, Europe, etc...  The usual culprits but, nevertheless, things that could provide significant road bumps on the way to reaching the highs experienced over 5 years ago.  There remains much to keep us up at night but the market's resilience (not to mention the Fed intervention) has the market poised for more gains in the coming weeks.  We would not be surprised to see a little more weakness over the next few weeks before the market makes another charge into the end of the year.  As always, we are watching things closely and making portfolio changes as market conditions warrant.