The earnings season kicked off with a thud from aluminum maker Alcoa (AA), which missed on the top and bottom lines. The company’s management is updating its global outlook in key areas:

It should be noted that the company sees China strengthening in the demand for autos and buses while the building boom around the world continues with a demand up to 6%.  As for the earnings implication, the Street was already sobering to the notion of another quarter of year-over-year decline in earnings.

Bracing for Rough Season

According to FactSet, S&P 500 sales will increase 2.5%, but earnings are looking to be down 2.4%.  Three months ago, the estimate was that sales were up 2.2% with a slight increase of 0.4% in earnings. However, the story is obviously deeper than that and we should look at individual sectors; here are the winners:

These are the sectors bracing for a rough ride:

So, when market skeptics look at the trend of lower year-over-year earnings (see below), it’s understandable that they would wonder why the market is higher; and they’ll certainly brace for it to tumble.

On that note, I continue to say the market is slightly overvalued, making this more of a stock-picker’s market, which shouldn’t be confused with buying ‘cheap’ stocks. It’s a term that has a myriad of different meanings and has led to a myriad of losses for folks looking for false value.

The long-term earnings trend suggests a rebound soon, possibly even in this earnings season.

Key market support points:

• Dow Jones 18,100 to 18,000
• S&P500 2,100 to 2,000

Today’s Session

We are watching this session closely, as investors not only deal with the toughest session in over a month but we must wait and interpret the FOMC minutes, as the 10 year bond yield breaks through key resistance points and the dollar is much too strong for anyone's taste.