NEW YORK (TheStreet) -- This week's earnings reports should provide the market with an excellent read on economic strength.
The seven companies I am profiling today, including Alcoa (AA), JP Morgan Chase (JPM) and Yum! Brands (YUM), all report earnings this week. They will provide reads on demand for aluminum, fast food, discount-store products, trucking and banking.
How the market reacts to earnings is extremely important as the Dow Jones Industrial Average and S&P 500 try to rally toward their October 2007 highs at 14,198.10 and 1576.06, respectively.
Fundamentally, there's a 50/50 split between the number of undervalued and overvalued stocks with 13 of 16 sectors overvalued, six by double-digit percentages.This means that market momentum, or "mojo," is the driving force higher as QE hype continues. At www.ValuEngine.com, we show the basic industries sector 3.0% overvalued, the retail-wholesale sector 14.4% overvalued, the transportation sector 1.7% undervalued and the finance sector 13.5% overvalued. If earnings disappoint in this environment, those individual stocks could catch QE fatigue, making it tougher for additional strength toward those October 2007 highs. Both the Dow Jones Industrial Average and S&P 500 ended last week with positive but overbought weekly chart profiles, and only the Dow set a new post-QE3 high on Friday. The other major averages including the S&P remain below their QE3 reaction highs set on Sept. 14 or Sept. 21. This divergence is a sign that individual stocks could have difficulty taking out their 2012 highs following their earnings reports. Most companies will have the accounting flexibility to match or beat EPS estimates, but you should expect a higher-than-normal number of misses on the revenue line. In addition, forward guidance should be subdued given the uncertainties of global economic growth and the "fiscal cliff" that looms as 2013 begins.
Reading the TableOV/UN Valued: The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage, according to ValuEngine. VE Rating: A "1-Engine" rating is a strong Sell, a "2-Engine" rating is a sell, a "3-Engine" rating is a hold, a "4-Engine" rating is a buy and a "5-Engine" rating is a strong buy.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV