Don't Count on Earnings to Save Us

 | Dec 12, 2011 | 1:08 PM EST
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The primary excuse for the selling today is recognition that there hasn't been any real progress in Europe, despite all the news last week. The European Central Bank is the key to any solution, and it basically punted. Unfortunately, we have another problem developing, and this one may be less anticipated than European strife.

Since the market bottom in March 2009, we have at least been able to count on fairly good earnings reports. Despite the struggling economy and all the negativity on Main Street, corporate earnings reports have been consistently solid.

So far this quarter, we have already seen more warnings than in any other quarter since the lows. Intel (INTC), Texas Instruments (TXN), Altera (ALTR), OmniVision Technologies (OVTI), Corning (GLW) and DuPont (DD) have all cautioned, and it is still quite early.

So far, the weakness has been mainly in the technology group, but DuPont in the chemical sector is an indication that it may be a broader phenomenon. Financials are the most likely sector to issue warnings, but if oil and commodities start to lower expectations, that could be much worse. Recent slowing in China and India is raising the risk levels.

Earnings season doesn't start for about a month, so we have time for expectations to come down, but if they are coming down like Intel's have today, then it is going to be very rocky out there. A year-end rally is much tougher to put together if we are being hit with earnings guide-downs.

Earnings have been the bright spot in this market and have prevented many of the other negatives out there from having any impact. If we lose this tendency for solid earnings, we better be ready to play some very tough defense. It is possible that we are getting the bad news out of the way early, but the warnings are a theme that is not looking very good right now, and we will have to watch very closely.

Intraday, the indices have not been able to mount any sort of bounce so far. The longer we go without some sort of dip-buying interest, the more likely we won't see a good intraday turn.

I'm laying low and not doing much until we see some better upside action.

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