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What I'm Watching For This Earnings Season

Alcoa ($AA) reports this week, kicking off earnings season after a  wild move in the equities market.

And I think this name, along with a handful of others, will dictate how the market will trade going into the end of the year.

Who is Behind the Wheel?

There have been two major themes driving the market.

We have had the Euro Voodoo. Any news across the Atlantic has driven equities in this big, ugly, stupid range. The markets are trendless, mean-reverting, and binary from the news that comes out overnight.

The second theme, and I believe it's more important, is China. The slowdown in China has led to a very large "risk-off" trade, including ugly action by steel stocks ($SLX) and other base metals (see $JJC and $DBB).

During the last earnings season, several firms such as $CAT cited China demand as rationale behind not-so-hot earnings numbers. This trade led to risk-off action in emerging markets ($EEM), commodities ($DBC), and the carry trade ($DBV).

Ugly Numbers

There are so many commodity and global growth names that are deeply oversold by many accounts.

The question here is are these prices justified?

My Gameplan

I'll be watching very closely to these names as they report numbers. If earnings and guidance reflect the slowdown, odds are the market properly priced in the China theme.

If there's any hint here that the market has overreacted to China, there could be a squeeze in commodity related stocks.

This may occur in parallel with not-bad news out of Europe, which would lead to the perfect conditions for a breakout of this range and a rally into the end of the year.

by Steven Place

Steven Place is the founder and head trader at