Let's remember that earnings season is about a couple primary issues.
1. Beating guidance for the previous quarter
2. Firm guidance for the present quarter and/or future quarters.
On point one, Thomson's survey of analysts show they're expecting overall Q2 earnings of S&P 500 companies to rise by a paltry 4.4%. That's a pretty low number to beat considering all the talk out there of the strong global economy and how a weak dollar is beneficial to U.S. exporters.
Will this be a repeat of the Q1 script which also a featured low projections which when exceeded helped the stock market to rally in April and May? The bulls are saying 'yes' in resounding fashion pointing to that supposed strong global economy (how strong is it when global growth is predicated on Asian and emerging economies accumulating our paper and keeping their currencies weak ala Bretton Woods 2) and technical indicators like RSI and MACD which have been turning in their favor - and indeed some of the technicals are looking better in the aftermath of the June stock market swoon.
But let's not forget, the market was coming off a low during Q1 earnings season, subprime ABX rebounded sharply after the Fed, Freddie and Fannie (FFF) flooded the markets with liquidity, and 10 year yields dipped down to 4.6% after the FFF bailout and crude was flirting with $61. Compared to what's going on today with ABX at the lows, yields at 5.20 and crude marching toward all time highs, the headwinds are going to be strong.
Since late May the market has been stuck between S&P-500 1490 and 1540; it has been range bound. Imho the damning sign for the short will be a break above 1540. Let's face it, the bears have had some pretty good ammo to work with, and yet we find ourselves back toward the high end of the range. Recent breakouts have been good for another 20 to 30 points of upside in the S&P - something that needs to have at least a little respect especially with another lowered earnings bar scenario.