Predicting the market: Here's what the pros are watching for

By Julian Close,

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On Tuesday, investors were treated to one of the market 's abrupt mood swings. Story after story in the financial media attempted to explain how things were so good as to justify the market's most recent all-time highs, while at the same time, a sudden, overwhelming downdraft seemed to hit the entire market, pushing all indices sharply lower. What no one yet knows is whether this is the beginning of a long anticipated correction, or whether the market is just doing its version of the Charleston and taking its proscribed step back before the next two steps forward.

That is to say, no one knows for sure . But everyone is looking for direction, and that means that every indicator can take on added significance. This week, there are three signals in particular that the Street's gurus will watch for before committing firmly to a bearish or bullish position. Here they are, starting with the one we will see first.

After the close of market on Tuesday, Alcoa ( AA ) will be reporting the results of its 2014 second quarter. Alcoa's earnings report is a natural bellwether as it is a consumer-invisible industrial company that produces light metals for use throughout the entire global industrial landscape, but with a particularly strong relationship to the transportation sector. It's report also kicks off earnings season . Of course, the Street will be watching to see if Alcoa meets the consensus estimate of $0.12 per share, but the truly savvy will be watching the company's guidance. Most analysts see the company earning about $0.47 per share in 2014 and $0.74 in 2015. If those figures are confirmed, the Street is likely to be quite happy, and if they are threatened, the reverse is almost surely true.

Wednesday, after the close of the market, the Street will be watching Wd 40 ( WDFC ). Yes, it is odd that a $1.1 billion company should command so much attention when Alcoa is worth $17 billion, nevertheless, the maker of drip oil and spray lubricant is seen as a sort of validation if its third quarter earnings report goes the same way as Alcoa's second. The focus, in this case, will be on EPS, as the company missed the Street's target last quarter. This time, the magic number is $0.72 per share.

If both of the above indicators go in the same direction, the weight of market opinion will likely be decided, though for how long remains anyone's guess. If, however, one is good and the other bad, the Street's prognosticators will focus intently on Thursday's Initial Unemployment Claims number. The apparently strengthening job market has been one of the most compelling rallying cries of market bulls in recent weeks, and if the number comes in low (low being good), optimism will likely prevail again. If, however, the strong job market turns out to have been a mirage, expect bad things.

If all three indicators are fails, chances are good we are in for a correction, albeit a bull market correction. It may get a bit a rough and scary, particularly for those who have been buying into the run up, but it will reverse course in the end, ultimately doing little more than giving those on the sidelines a nice buying opportunity.

Julian Close has been a business writer since the first day of the twenty-first century, having written for PRA International and the United Nations Department of Peacekeeping. He graduated from Davidson College in 1993 and received a Master of Arts in Teaching from Mary Baldwin College in 2011. He became a stockbroker in 1993, but now works for Fresh Brewed Media and uses his powers only for good. You can see closing trades for all Julian's long and short positions and track his long term performance via twitter: @JulianClose_MIC .

This article was originally published on

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Earnings
Referenced Stocks: AA , WDFC

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