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Fast Money

Earnings Season To Be Very Telling

As the traders have been telling you, the next earnings season will be a key factor in determining whether the bulls or bears ultimately control the market. And it kicks off Wednesday with Alcoa, the largest U.S. aluminum maker.

"The third quarter is going to be very telling," says Howard Silverblatt, an analyst at Standard & Poor's in New York.”

And that market 'tell' pretty much comes down to one thing -- top line growth.

"Investors will be watching top line earnings for sales growth, explains Joe Terranova. And how much of it we see will be the catalysts for this market for the rest of the month. 

Both the bulls and bears will be watching these numbers very closely.

Not only do the bulls want to see top-line growth drive earnings they need to see it. It's pretty much priced in, already. (Remember last quarter  earnings were largely buoyed by bottom line growth from cost cutting)

The bears, by their nature, are not optimistic. They expect to see weakness. And even bottom line growth (or net income growth) will probably will be considered weakness, if it’s driven by lay-offs or more cost cutting.

So what should you expect?

"We might start seeing some top-line growth in the third, and certainly in the fourth, quarter as in our view, the economy has turned and the recovery is well in place," says Henry Smith, chief investment officer of Haverford Trust Co. in Philadelphia.

Where should you look for winners?

The financial sector is expected to show the highest growth rate of any S&P 500 sector, followed by consumer discretionaries, while materials should have the lowest earnings growth rate, Thomson Reuters data shows.

What are the trades, this week?

I like Alcoa ahead of earnings, says Jon Najarian. I think they could say good things about demand. And I'm bullish on Yum Brands which comes out on Tuesday!

Monsanto comes out with Alcoa on Wednesday, he adds. I think it could show some decent upside.  And I’m watching  shipper JB Hunt. I think that could be a ‘tell’ ahead of the holiday shopping season.

> On Friday other traders spoke  about how to trade Alcoa earnings. Click here to find out what they said.

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Trader disclosure: On October 5, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Grasso Owns (AAPL), (ABK), (BAC), (C), (COST), (CSCO), (PFE), (V), (MMT); Terranova Owns (NOV), (JPM); Terranova Owns Dec. Gold Futures; Terranova Owns March Sugar Futures; Terranova Owns Crude Futures; Terranova Is Short (CCL), (WYNN), (GRMN); Najarian Owns (C) Calls; Najarian Owns (BRCD) Call Spread; Najarian Owns (DELL) Call Spread; Najarian Owns (GE) Calls; Najarian Owns (JPM) & Short (JPM) Calls; Najarian Owns (MSFT) And Is Short (MSFT) Calls; Najarian Owns (TEVA); Najarian Owns (ORCL) & Short (ORCL) Calls; Najarian Owns (RIMM) Call Spread; Najarian Owns (WFC) Put Spread; Najarian Owns (YHOO) Call Spread

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