MORE EARNINGS

Another 15% of the S&P 500 index report earnings during the coming week. Both General Electric, a company so diverse that it is said to be the ultimate barometer of economic activity, and Bank of America were flies in the ointment on Friday after disappointing on profits and revenues.

They were part of just 10% who missed analysts' forecasts last week out of some 61 S&P components. Of those who reported 79% beat forecasts and just 10% missed.

While companies are likely to have to surpass estimates to a significant degree in order to maintain the 60% or so upwards trajectory for equities, it's still important to remember one thing. The equity market is at the beginning of an earnings cycle. That means that the rally can go further than most investors will expect. It always happens as any economy emerges from a recession.

But we should also note that there is also a distinction that has to be understood between today and six months ago. Several months ago it was tenable to expect further banking failures as it was to expect the consumer to perhaps sit on his or her hands throughout, further prolonging depression.

While baking failures continue to occur, there is no sense of "who's next to file Chapter 11"? The U.S. government has comfortably backstopped an entire collapse and it seems improbable that the conditions are currently in place to drag down another behemoth. In other words, the water is safe for investors to dip a toe and they are prepared to do so because the rewards are ripe for picking if we are indeed at the start of a new earnings cycle that would bolster prospects for tech and financials.

We say this because it really is the path of least resistance for now. It's key to observe that most of the bad-blood-letting has been done, and for that reason we can't and shouldn't expect to see any individual slip in earnings data that could be described as a catalyst for the next down-leg in the market.

Rather what we should be monitoring for is some sign that there are fewer willing buyers to fuel the market further upwards. This week as earnings come out, they should, on account of what's gone on before, impress. We need to see sufficient evidence that the investors are unimpressed before this market can rotate lower.

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