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Earnings season starts Monday

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The first trading week of the year brought good things for traders and investors. Good employment reports and a 1.6% gain in the S&P 500.

For most of last year the sentiment was to keep an eye on how bad everything was around the world and how much worse it could get. The confidence bashing is hard to get past and it becomes hard to fully appreciate good news even when it is starring you in the face.

Good news like estimated double digit earnings growth in 2011 for teh S&P 500. Good news like the manufacturing sector expanding for 29 consecutive months. Good news like an improving labor market with last weeks employment report.

At the close Friday, the spread between next years earnings yield for the S&P 500 and the 10 year Treasury note was 643 basis points. The average spread over the last decade is only 159 points. To say the least, there is strong presence of negative sentiment in the stock markets valuation.

It is coming out again today as the market turns its attention to the meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel to discuss ongoing reform efforts for the eurozone. Europe has cleary not left center stage, despite good economic news in the US. Overnight deposits at the ECB are hitting a new record highs and Italian bonds recetnly spiked up over that 7% number again.

Earnings season 'offically' starts tonight when Alcoa (AA), reports their earnings after the market closes. How US stocks react to earnings will be telling as to immediate future propspects. More US companies eased there estimates and guidance than raised them for this past quarter. So in many cases a 'beat' may not be as good a number, or a 'miss' may be more so; but how the market reacts to this will be key.

Trade with a plan.

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