When I handicap the earnings season, I begin with sector valuations provided by ValuEngine, and while the sectors appear less overvalued now than three months ago, they are not cheap. The reasons for the modest improvement are higher 12-month trialing EPS, improved projections for 12-month forward EPS from Wall Street analysts and the fact that the yield on the 30-year bond is 4.90 today vs. 5.18 three months ago. When I look at P/E ratios, the range for the Dow components are 10.2 times to 24.4 times earnings, with a median of about 18 times. The broader market of more than 4,000 stocks range from 20.4 times to 29.8 times earnings, as shown in the table below.

We know that the Dow is stronger than I had expected, getting back above 14,000 after testing 12,518 on Aug. 16. Even so, I have not expected gains above 14,000 to be sustained, but there need to be weekly closes below my quarterly and semiannual pivots at 14,025 and 13,925 to confirm that last week's high of 14,198 is a secondary high to 14,021 set at the July high. The downside is back down to my annual pivots yet again at 13,036 and 12,492.

Technicals for the Dow

The weekly chart profile remains positive, given weekly closes above the five-week modified moving average (MMA), which is at 13,775 this week. I do note that while the 12x3 weekly stochastic reading is on the rise, the trend of this momentum measure is declining. A weekly close below the five-week MMA indicates risk to 13,036 and 12,492. A close below 12,492 indicates risk to the 200-week simple moving average at 11,255.

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Courtesy of Reuters