"There can be no deep disappointment where there is not deep love."
-- Martin Luther King, Jr.
Of the half dozen or so major earnings reports last night only Amgen (AMGN:Nasdaq) did not generate a negative response. Some of the reports were just fine but expectations were simply too high to be met. A couple of the reports, particularly Yahoo! (YHOO:Nasdaq) were just downright poor and that doesn't help matters at all.
I wrote yesterday that the sell-the-news setup was almost too perfect to actually work. A big move in front of the reports and extremely high expectations seemed almost too obvious for investors to find themselves being overly optimistic but sometimes in the market the things that seem painfully obvious to an objective observer are ignored by the bulk of the market when it is feeling highly emotional.
The dominate emotion in the market lately has been an unusually high level of complacency. A lot of folks were falling in love with the idea that we were at an early stage in a powerful rally led by technology stocks. Maybe we will see that but it won't happen with the current level of optimism and bullishness. Expectations are too high right now and that means there are going to be more disappointments.
I'm looking for the market to continue to struggle as earnings season unfolds -- not because we are going to have bad reports but because too many investors are expecting better and too many folks will be looking for a chance to lock in profits. We are going to have some good reports but until the market consolidates and rebuilds a decent wall of worry it is going to be very tough for us to move much more to the upside.
To complicate matters a bit more we have the semiannual congressional testimony of Alan Greenspan today. Unfortunately, the same overly optimistic dynamic that is work in earnings reports seems to be at work when it comes to the FOMC. Too many folks are ready to declare that the interest rate hike campaign is at an end. They want to believe that the Fed is now a toothless tiger and will no longer have a major effect on the market because we all know it will only raise rates a couple more times. Look for Mr. Greenspan to dissuade them from this viewpoint today.
Greenspan isn't going to disclose what his plans are because it will render those very plans impotent. He has to keep his options open in order to have any significant influence over the market. I expect to hear the chairman sound hawkish today and the market to start second-guessing how many more rate hikes are to come.
We have a lot of crosscurrents to wrestle with today. The bulls are going to tell us the earnings reports really are pretty good while the bears will tell you that we got too frothy and are due for a correction. It should be a good battle.
The early action is negative. Overseas markets were generally OK. Oil is up a tad and we'll have to keep an eye on that sector. The oil services index (OSX) bounced big yesterday and we may see some momentum build there.
