×

Signs of bottoms, but watch earnings revisions

I noted Tuesday that the markets have been rallying in the last few days because the four major sources of anxiety—oil, base metals, bond yields, and European equities—have shown signs of bottoming. A rare day of weakness for the U.S. dollar provided additional help yesterday.

Several of these trends have been building for a while. Oil has been hovering in the mid-$40s for a month, and Europe has been stronger since mid-January.

But the combination of all four trends together—aided by word that a deal with Greece may be possible and a breakout in oil to the $50s—has created a powerful rally. The S&P 500 has rallied 70 points from its high to its low in two days.

Read MoreUS services sector growth accelerates in Jan but new business at record low: Markit

Can it last? Lowry Research, the oldest technical analysis service in the United States (founded in the 1930s) issued a note to clients last night saying, in part, "the market reached an important low on Jan. 30th and has now embarked on a rally that should, at least, test the late Dec. bull market highs for the major price indexes."

Half way through earnings season, it should get easier.

Fifty percent of the S&P 500 have reported. Disappointing numbers from large banks and dramatic announcements of future production cuts and capital expenditure spending reductions from oil companies have greatly compressed earnings growth. We are looking at earnings gains of a little more than 2 percent for the S&P 500 for the fourth quarter, according to Factset.

What worries me is that earnings estimates are continuing to come down for the Q1, which is the quarter I really care about.

But it's going to get easier. The downward revisions in energy sector estimates have ceased. A very large percentage of companies—roughly 80 percent—have been beating estimates recently. That's well above the average of roughly 70 percent, and early signs from retailers, which have not yet reported, have been positive.

Kohl's reported fourth quarter comparable store sales of 3.7 percent, above prior guidance for an increase of 2 to 3 percent. The retailer also guided earnings to $4.20 to 4.22, higher than prior guidance of $4.05 to $4.45. This was its first positive comp since the second quarter of last year. A new loyalty program, Yes2You, appears to have helped generate traffic.

Read MoreRetail FAIL: After RadioShack, who's next?

Macy's yesterday guided slightly higher for the full year.

And we had generally positive comments on retail sales.

The bottom line: Earnings should come in line with expectations.

Not that anyone is expecting a blowout. We all know consumers are buying a lot of cars, and that means less clothes and cosmetics.

Read More Automakers on pace for banner year: AutoNation CEO

As for the Staples-Office Depot deal, when you are part of a declining industry, less capacity is a good thing. The combined companies have roughly 3,000 stores. There has been talk of closing roughly 600 of those before the deal was announced. They will likely close even more now. How many? That is not clear, but estimates that another 500 might be closed are likely not far from the mark.

KeyBanc estimates there could be $750 million in synergies, which would be 4.5 percent of sales.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

Wall Street