Moment Of Truth For The Nasdaq

nasdaqJon Markman:  Get ready for the first-quarter earnings reporting blitz!

Almost 125 companies have reported Q1 earnings through Thursday. Of these, 65 percent have beaten earnings estimates, while only 48 percent exceeded revenue estimates. Of the 53 companies in the S&P 500 that have reported, 72 percent have beaten earnings estimates, and 54 percent had better-than-expected revenues.

It’s not new that companies are more likely to beat their earnings number than their revenue number, but it’s not an encouraging sign either. It mostly means that since the economy is just not growing much, it’s hard for companies to increase sales. So companies are focusing on financial gimmicks to increase earnings. For about the past five years skeptics have said that this is unsustainable. One day they’ll be right, but when?

Big companies that have beaten estimates the most and seen the greatest reward in their share prices so far are Citigroup (NYSE:C) and General Electric (NYSE:GE), with 4.3 percent and 2.1 percent pops on their report days. Worst have been IBM (NYSE:IBM) and UnitedHealth (NYSE:UNH), with losses of 3.4 percent and 3.5 percent on their report days, followed by Google (NASDAQ:GOOG), at -3.2 percent.

Thursday will be the most active day for earnings this week, when more than 300 companies are expected to report, headlined by Verizon (NYSE:VZ), 3M (NYSE:MMM), Caterpillar (NYSE:CAT), GM (NYSE:GM), and Under Armor (NYSE:UA) in the morning. After the bell Microsoft (NASDAQ:MSFT), Visa (NYSE:V), Starbucks (NASDAQ:SBUX), Wynn Resorts (NASDAQ:WYNN), (NASDAQ:AMZN) and Broadcom (NASDAQ:BRCM) will release their numbers.

The run-up to this earnings week has been quite strong, but that’s par for the course. The week before Easter has been positive for equities two-thirds of the time for the past six decades, with an average advance of 0.9 percent, and gains eight of the past nine years, according to Bespoke Investment Group data. The gain was 2 percent this year, which more than fit the bill.

It has historically been a challenge to hold onto those profits, though, as the Nasdaq typically gives up most of that ground quickly following weeks in which it rallies sharply from a multi-month low.

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Until the bulls can push the Nasdaq Composite back over downtrend channel resistance near 4,150, the past week will look like nothing more than a relief rebound within the context of a broad selloff.

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