NEW YORK ( TheStreet) -- The next obstacle for the market is upon us. The bears are forecasting a no growth earnings season. They have moved on from European crisis mode and are now fretting about the impact of high commodity prices, decreasing Chinese growth and a weakened European economy. The past week has offered hundreds of articles on the topic . The true test of an economic variable is the market's reaction to it. We will closely monitor the market's reaction to earnings season with the first few reports. It's worth noting that the Dow is showing increased downside volatility in the near term.
Over the past two weeks, we have had three days in which the Dow dropped more than 125 points. The Dow hasn't closed below 13,000 since March 12, but as I write this post the Dow is trading at an intraday level of 12,909 due to the worse than expected employment report. The Dow 13,000 level is a good barometer as we observe the next few weeks of earnings reports. Our view, however, is a little different than the bearish view. We think that these lowered earnings expectations could not come at a better time. This is the perfect set-up that enables companies to beat expectations. Instead of the market being down, it has merely flattened out and is waiting to see what the next few weeks will bring. Let's look at today as an example. Apple ( AAPL) had every reason to be down $10. As 20% of the Nasdaq there is significant downside pressure when the index is down 40 to 50 points and yet Apple buyers overwhelmed the selling pressure as the stock went into positive territory. In addition to the employment selloff, Apple was downgraded this morning on the thesis that wireless carriers are on the verge of cutting back iPhone subsidies that provide Apple with its $600 ASP. The thesis makes sense in a theoretical sort of way but here in reality we see carriers like Sprint ( S) deciding to do whatever it takes to become an iPhone distributor. Apple calls its own shots when demand is off the charts. Apple remains in charge when it comes to pricing power. This was the first downgrade to Apple since Colin Gillis downgraded the stock 60% ago in October of last year. The institutional demand from income/dividend investors continues to push this stock upwards.