One chart suggests earnings growth is about to pop

One chart points to a big earnings turnaround on the horizon

Earnings season is at our doorstep, and Wall Street has become more bearish.

Analysts anticipate a 3% earnings contraction for the quarter, worse than the 1% decline expected in July, according to FactSet.

Jim Paulsen, chief investment strategist at The Leuthold Group, said one chart suggests earnings growth estimates may not be as bad as feared and could continue to improve.

"If you look at the U.S. economic surprise index ... just recently in the last couple months or so we've gone from some of the worst economic surprise readings to the best economic surprise readings," Paulsen said Monday on CNBC's "Trading Nation."

Paulsen said Citi's U.S. Economic Surprise Index went from negative 70 at the end of June to positive 40 now. That's going to give earnings estimates and guidance a big bump, he said.

"When you get some of the best economic surprise ratings, historically at least, what that's meant for the next six months is that earnings estimates often are raised at a double-digit pace on an annualized basis and typically, they don't fall very often either," Paulsen said.

A turnaround in earnings estimates would be the last puzzle piece in a market already supported by a Federal Reserve accommodative with policy, adds Paulsen.

"We significantly dropped the competitive interest rates, and then we brought the full policy cavalry, everyone easing to support the market [over the last year]. That's brought us back to about the previous highs," said Paulsen. "What it's missing for a major run is earnings and earnings estimates have been coming down all year. And it would be huge if earnings estimates turn up here."

The S&P 500 ended the third quarter less than 2% from record highs set in late July. Major banks J.P. Morgan, Morgan Stanley, Wells Fargo, Citigroup and Goldman Sachs kick off earnings season Oct. 15.

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