Markets Rally Ahead Of The Earning Season

Current Futures: Dow -20.00, S&P -9.00, NASDAQ -6.00  

European Trade: Equity markets are trading higher, helped by the newly announced Government plans. Asian markets closed in the green, while European markets opened higher, as investors think the newly taken measures will help the economy.

However, history shows that this is mostly a short-lived trend. Equity markets are heading towards the earning season, which is usually the main driver of the market throughout the rest of the quarter. With the current credit crunch and reduced activity coming from the consumer side, the earnings season is forecast to be, yet again, very poor. In the last two years, earnings started to decline, reflecting the weak economic conditions.

In the three major regions, Europe, U.S. and Japan, earnings are forecast to drop on average by 10%, making it one of the worst earnings seasons in the recent history. Equity markets cannot rise with poor earnings results, as the share's valuation would not be supported by its balance sheet.

Tonight, the Nikkei gained 183.56 points (2.07%) to 9,043.12. The Australian S&P/Asx fell 26.80 points (0.72%) to 3,687.00. In Europe, the German Dax rose 37.31 points (0.75%) to 5,010.38, while the U.K. Ftse gained 25.29 points (0.55%) to 4,587.08

Crude oil traded on very low volume in the Asian trading hours. Crude oil for January delivery fell $0.50 to $46.90.

Gold bounced again from the $880 resistance area. Bullion for immediate delivery lost $8.90 to $873.30.

Previous Asian trade: Helped by government proposed actions, Asian markets have been rising for eight consecutive days, the longest streak in the last few years. Furthermore, the major equity indexes broke above important resistance areas, suggesting that they might head higher from a technical point of view.

Sources have said that President-elect Mr. Obama is trying to reduce taxes in order to stimulate the economy. This would be only a part of the $700 billion stimulus plan Mr. Obama will try to implement in the following weeks. Back in early 2000, when the economy was facing a recession, Mr. Bush decided to reduce the tax level for a limited period of time. It now looks like those tax cuts are going to be permanent.

Friday, the major indexes broke the resistance areas of the last few months, something that could signals further gains might be ahead. The S&P broke above the 915.00 area for the first time in the last two months, while the German Dax closed above the 4800.00 resistance area