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Since the stock market hit a 12-year low in March, the two earnings seasons since then lit a fire under share prices as the results blew away expectations and vindicated the bulls looking for signs that things were getting better or at the very least, less bad.
The S&P 500 jumped 12 percent from when Alcoa [AA
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] (the first Dow Average member to report) posted results in early July to five
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weeks later when Hewlett-Packard [HPQ
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] (the last Dow member to report) put out its release. In the prior earnings season from early April to late May, the S&P 500 jumped 9 percent.
What's more, before Alcoa kicked off the two prior earning seasons, the Chicago Board Options Exchange Volatility Index, known as the 'fear gauge', spiked higher as rally-doubters bought more puts than calls in the options pits to protect themselves going into the profit reports.
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That bearishness turned into fuel for the rally as the reports began to validate the bull case.
We're seeing a similar pattern unfold right now with stocks stalling for two weeks and the VIX coming off a recent spike. Will these earnings reports once again fuel the fire? We'll ask the Fast Money traders tonight. The bar is certainly higher this time as analysts have started to believe before seeing the earnings reports, upgrading many stocks the last two weeks.
Also, while the 'fear gauge' did jump last week, it is still WAY down from levels six months ago so there are not as many bears left to turn into bulls this time and fuel the rally.
John Melloy is the Senior Editorial Producer for Fast Money. Before joining CNBC, he was an editor for Bloomberg News, overseeing the U.S. Stock Market coverage team.______________________________________________________
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