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Earnings Season: Will the S&P 500 break out of the 2011 100 point price range?

Earnings season is here for the year 2011, the S&P 500 has stayed within a 100 point trading range. Is there a catalyst on the horizon that might push the S&P 500 outside of this range?

Alcoa Car
Image by hyku via Flickr

For the year 2011, the S&P 500 has stayed within a 100 point trading range. Is there a catalyst on the horizon that might push the S&P 500 outside of this range? The answer quite simply, is yes. Earnings season begins on Monday, July 11 with Alcoa reporting second-quarter performance. The concern by the investment community is that corporate America will begin to cut their earnings estimates for the rest of fiscal year 2011.

With the S&P 500s fiscal year 2011 earnings estimates projected at about $95 per share, there is little room to disappoint with lowered earnings guidance going forward. For the past two months there’s been a great deal of discussion in the media that the much ballyhooed economic recovery is proceeding at a slower pace than expected. The earnings of corporate America will have the power to either dismiss concerns about slow economic growth or reinforce them. Either way, this earnings season looks to be the catalyst that will cause the S&P 500 to break out of its trading range.

Technically, the key areas of support and resistance for the S&P 500 are 1260 and 1360. Most recently the 200 day simp

le moving average provided strong support for an otherwise nervous market. Now, with the adoption of austerity measures in Greece, and a very high probability of a near-term solution to the debt limit here in the United States, the investment community is turning its eyes back to the profitability of corporate America. Will the markets move up? Will the markets move down? The answer lies in the guidance provided by corporate America in the next two weeks. It will most likely be a volatile time in the marketplace.

If you are long this market it is probably a good time to be hedged. The same holds true if you are short this market. Up or down, it looks to be a volatile time, and earnings will be the driver of the market for the next couple of weeks.

Jeff McAllister
OptionsANIMAL Instructor

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