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Apr.18
8:09 PM ET
Week Ahead: The Big Test
Posted By:Patti Domm
Sectors:Oil and Gas

Whenever the stock market rushes full speed ahead, it is hard not to step back and look for the big let-down.

That could be the case in the week ahead -- but better-than-expected earnings added a positive tone to a market that technicians say is behaving admirably, at least for now.

Major earnings reports, housing data, annual shareholder meetings, and Tuesday's Pennsylvania presidential primaries are what traders will be watching to see if the trend continues.

Getting Technical

In uncertain times, like now, we've come to follow the technicians more closely. Natexis Bleichroeder technical analyst John Roque said the market is following a pattern he's been expecting.

"For the last number of weeks, we've been expecting an S&P rally," said Roque. "We continue to believe that natural resources and basic materials will be the leadership."
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Roque said this past week's move was a positive. "It's been a good sign that the number of new lows on the NYSE has dried up and the number of new highs are increasing," he said.

When stocks retested their lows in mid-March, Roque said it became clear that that was a low point, and that convinced him the market was oversold.

"The sentiment was disgusting at that point. Everybody hated everything," he said. "I don't know how strong the rally will be but we're looking for 1420 [on the S&P 500]," Roque said.

That target would equate to about 13,100 on the Dow. Roque says he will adjust his targets only after the market reaches those levels.

Stocks, in their upswing this week, pushed through their February highs. The Dow finished the week at 12,849, up 4.3 percent, its highest close since Jan. 10. The Nasdaq, fired up by Google's [GOOG  Loading...      ()   ] super rally, rose 4.9 percent for the week, and the S&P 500 was up 4.3 percent at 1390.

Earnings Central

Despite the positive market tone and the relief among traders about earnings news, there's some concern that it may be downhill from here. This is the weakest earnings period since 2002, according to Goldman Sachs. In a note Friday, Goldman Sachs strategist David Kostin says he expects "further macro weakness and 2008 EPS cuts that will push the S&P 500 lower."

Kostin says analysts, on average, have trimmed 2008 estimates for companies that reported by 2 percent. Goldman analysts say the quarter is flashing mixed signals with techs better, financials weaker and international sales making some companies winners.

"We believe that continued negative earnings revisions will ultimately lead the equity market lower, regardless of any short-lived rallies," the analysts said.

Citigroup's Tobias Levkovich says stocks could still face mid-year "challenges." In his Friday note, he says he expects the market to face downside risk around mid-year, as analysts shave earnings estimates.

But Levkovich says there's a case to be made for a more bullish view in the second half. One factor should be an improved credit environment.

We can look forward to more earnings news from big-name tech, big pharma, and the first of the oil companies in the week ahead.

Reporting:

On the tech front, Texas Instruments [TXN  Loading...      ()   ] reports Monday; Yahoo [YHOO  Loading...      ()   ] releases numbers Tuesday; Amazon [AMZN  Loading...      ()   ] and Apple [AAPL  Loading...      ()   ] are out Wednesday, and Microsoft [MSFT  Loading...      ()   ] reports earnings Thursday. Among the big drug companies, Eli Lilly [LLY  Loading...      ()   ] , Novartis [NVS  Loading...      ()   ] and Merck [MRK  Loading...      ()   ] report Monday. Merck's CEO will appear on CNBC.

AT&T [T  Loading...      ()   ], McDonald's [MCD  Loading...      ()   ] and DuPont [DD  Loading...      ()   ] report Tuesday; and Anheuser-Busch [BUD  Loading...      ()   ], Boeing [BA  Loading...      ()   ] and UPS [UPS  Loading...      ()   ] report Wednesday. On Thursday, ConocoPhillips [COP  Loading...      ()   ] and PepsiCo [PEP  Loading...      ()   ] report. Friday has Ericsson [ERIAF  Loading...      ()   ] and Honda