Investors Uneasy Ahead of Earnings and Economic Data

By: Bob Pisani
Reporter

Bob Pisani is off today, this post was written by CNBC producer Robert Hum
The markets took another leg down in the middle of the morning, with the Dow and S&P sitting at their lowest levels since the end of April. With 4 straight weeks of losses, the Dow and S&P are now about 9 percent off their June highs. The current losing streak comes just after the Dow’s amazing run of only 2 down weeks over a 14-week period.

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While the markets may be oversold now, is a near-term bounce near?Maybe not, according to Lowry Research, one of the oldest technical analysis firms in the country. In their latest note, Lowry sees signs of current market conditions continuing to weaken as buyers remain seated on the sidelines with exchange trading volumes remaining light. They suggest that the markets’ recent struggle to produce any upside momentum in oversold conditions may indicate that “prices have not yet fallen far enough to generate enthusiastic investor demand.” Just as worrisome are signs that the markets’ strong recent rally from March to June may be truly over, with a more prolonged downtrend now possibly in store. Lowry points out that the markets’ failure to put together any rebound amid recent oversold conditions is more representative of trends that occur in bear markets rather than in bull markets.

Bottom line is that buyers have little incentive right now to jump into the markets ahead of a big week of earnings and economic data next week—and what an important week it will be. This week, eyes will undoubtedly be on some of the major financial firms—Goldman Sachs[GS 141.87 -1.34 (-0.94%) ], JPMorgan [JPM 32.34 -1.28 (-3.81%) ], Bank of America [BAC 11.88 -0.09 (-0.75%) ] and tech companies IBM [IBM 100.83 -1.25 (-1.22%) ], Intel [INTC 16.04 0.02 (+0.12%) ] —as they report earnings and hopefully provide some color on their current business conditions. On the economic front, key inflation (PPI, CPI) and housing (building permits, housing starts) reports along with retail sales and industrial production data will be in focus. Getting better than expected numbers next week would be a catalyst for the markets, giving buyers a reason to move away from the sidelines and begin investing more money in stocks once again. On the flip side, however, disappointing data or corporate earnings would likely extend the current downturn further, dampening any hopes of a near-term rebound.

Take a look at what happened this morning. The markets opened lower, but soon rose off their lows 15 minutes into trading. Unfortunately though, the move up was thwarted by a weak University of Michigan Consumer Sentiment report, which sent the markets once again lower. Just as important over the next few weeks, buyers want to begin seeing greater signs of strength and not just “less bad” conditions. That will come in the form of improved revenue growth and stronger earnings guidance on the corporate front and from any hints of economic growth in the slew of economic data.