The Market's Precarious Position

Earnings season is upon us (more on that below), and the market indices are once again at a vital juncture. Thursday's session was all negative all the time as the jobs number proved disappointing.

The market continues to defy gravity, but now may be an important inflection point. Do the bulls have the muscle and the power to keep this rally moving or will the bears taken center stage and push the markets lower?

Stimulus From Earnings? Not So Sure

Some earnings will prove decent, but most will be a disaster. The second quarter of 2008 is going to be a hard number to beat for many firms. Even though many estimates have already been adjusted we will not see anything close to last year's earnings. The truth will come in expectations and whether anyone wants to step up and take the lead.

A smattering of earnings have shown some mixed results so far, and this pattern won't likely change. Energy is up significantly this quarter, and those names should post decent earnings. Tech also seems rather immune to the consumer meltdown, while retailers have discounted the Armageddon scenario but may be ahead of themselves.

( Alcoa ( AA) will kick off the earnings season for the Dow with its report after the market close on Wednesday. Other earnings this week include Ruby Tuesday ( RT), Family Dollar ( FDO), Pepsi Bottling ( PBG), 3Com ( COMS), and Infosys ( INFY).

Surprises Around Every Corner ... Still

The market is still showing a high level of complacency, and this will eventually have to change. The VIX is at levels not seen since before the Lehman disaster, so is risk to be tolerated now? I wonder about many of the "surprises" that can/will pop up out of nowhere.

Remember, we're in unprecedented times now. How is the situation here in California going to affect bondholders? Supply continues to be an issue for the Treasury. Will foreigners continue to buy our bonds in earnest? Geopolitical issues are concerning, too. The market seems to be resisting pricing in these and many other unknowns, which for me is rather dangerous.

Volume Tracker

As a big volume follower, I've noticed the market rising on lower volume. This makes sense, as the volume usually comes from the big-elephant buyers (institutions), and why would they be buying now with the markets up 33% from the lows? When prices come down is when we'll see their participation.

What's holding it up? Certainly a lack of sellers, along with "scared" shorts who are afraid of the the squeeze. (If you were short May 29, you felt the pain that day and the next few!) It doesn't take much get the market to rise when the sellers are not active. Getting back to volume, I am looking for some signs of life from sellers if the market starts to break. If so, there will be a market slide and good correction upcoming.

Bob Lang is a senior analyst and portfolio manager at BigTrends.com. He manages subscription services for the firm and writes timely articles about markets, trends and the economy. Lang's articles can be viewed on numerous sites on the Internet. Together with renowned market timer Price Headley, Lang has helped build his supported products into a winning class. He participates in a coaching forum for advanced traders in which he teaches his unique style of trading.

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