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Earnings will put this market to the test

Investors' resolve and market resilience will be put to the test this week as first-quarter earnings season kicks off.

Earnings for the S&P 500 are expected to be down 1.2 percent in the first quarter, according to estimates from FactSet Research. If the projection is correct, it will be the first earnings decline in a year and a half. This is not new news.

Investors/traders will be listening closely to CEO's, CFO's to hear what they have to say about real top-line revenue growth. If we begin to see a real surge in revenues, then we should see a rise in profit margins, which will then translate into even better-than-expected earnings forecasts ahead.

Read MoreWhat is a 'dead cat bounce?' Kenny Polcari explains in :30 seconds

The bottom line for the market would be significant: Stock prices could begin to reflect real fundamentals vs. Federal Reserve-induced prices, setting us up for a more robust second half of the year.

Weather will likely be the buzzword as CFOs and CEOs try to pass off poor earnings onto Mother Nature ... but is that the whole story? What will the guidance be? What role will China play, considering those same analysts tell us that China is about to roll over and "play dead?"

Traders and investors are expecting that retail, basic materials, consumer staples, energy and financials will disappoint and, as a result, many of these individual names have already been punished. Telecoms and utilities remain fairly upbeat. During the past week we have seen a clear rotation out of growth and into value as investors take profits to reallocate to more reasonably priced sectors, as well as sectors that will hold up better in a "correction."

Read MoreAlcoa earnings beat but sales narrowly miss estimates

JPMorgan is now the new leader on the block, as it is the first of the Dow stocks to report. This is always a moment of anticipation as it sets the tone for what is to come. Especially now, financials will be scrutinized due to the downward revisions. Investors will want to know where the issues are and what the future looks like? Mortgages? What does that say about housing? Trading — what does that say about investors and about one of the very significant revenue lines for each of these banks?

XLF, the financial-services ETF, is off 3.5 percent since its March highs as investors re-price based on expected weaker results for the group.

Read MoreBrace yourself: Europe earnings may be frustrating

Estimates have JPM announcing an 11-percent drop in earnings this quarter and that is after a stock buyback program that should have boosted EPS figures vs. last year. Goldman Sachs is expected to announce an even bigger earnings drop of 18 percent as well as a 13-percent drop in top-line revenue. What will Uncle Lloyd say about that — Was it the weather? Will he also announce more cost cuts? (translation: layoffs). What will they say about the trading environment? Meanwhile, Citigroup warned this week that it could miss its profitability target.

Overall, I suspect that we will see more money come off the table in the high fliers as longer-term investors take advantage of the anxiety that the shorter-term traders are feeling. A possible test of the S&P 500 200-day moving average of 1756 is not out of the question as large asset managers put money to work.

Calls for a 15 percent to 20 percent correction, I think, are misinformed. But hey, that's me! Dennis Gartman was screaming this week that it was time to "get out of stocks" — this is clearly like screaming FIRE in a crowded cinema. Exactly what you do NOT want to do.

Read MoreWhat are stocks doing now? Click here for the latest update

Kenny Polcari is director of NYSE floor operations at O'Neil Securities and a CNBC contributor, often appearing on "Power Lunch." Follow Kenny on Twitter @kennypolcari and visit him at kennypolcari.com.

Disclosure: The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O'Neil Securities or its affiliates.

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