Prepare Yourself For Stock-Market Rally's End

Jim Jubak MSN Money September 24, 2010

September's big market move faces a few hurdles with earnings season closing in. Here's why it's likely to stall, how to tell if it is and how to prepare.

So what could stop this rally?

How earnings forecasts move stocks

In other words, what should you be afraid of -- and when?

Just one word. Are you listening, Benjamin? Earnings.

But probably not in the way -- or with the timing -- that you would expect.Msn.Video.createWidget('PlayerAd1Container', 'PlayerAd', 300, 213, {"configCsid": "MSNmoney", "configName": "player-money-articles-16x9", "player.vcq": "videoByUuids.aspx?uuids=2d0e2445-6070-432b-a60f-398d537f08cc,514d612b-7cbd-42db-b9a2-6a8c74bb8849,4f2caefa-cca8-4153-82ad-31a803f6c5c6,2e44a8ad-47da-4f61-bc8a-318fcd900410,4e186e2d-c39e-458d-ab5b-105ddb898bdd", "player.fr": "iv2_en-us_money_article_16x9-investing-jubaksjournal"}, 'PlayerAd1');Msn.Video.createWidget('Gallery4Container', 'Gallery', 304, 150, {"configCsid": "MSNmoney", "configName": "gallery-money-articles", "gallery.linkbackLocation": "bottom_left", "gallery.numColsGrid": "3", "gallery.categoryRequests": "videoByUuids.aspx?uuids=2d0e2445-6070-432b-a60f-398d537f08cc,514d612b-7cbd-42db-b9a2-6a8c74bb8849,4f2caefa-cca8-4153-82ad-31a803f6c5c6,2e44a8ad-47da-4f61-bc8a-318fcd900410,4e186e2d-c39e-458d-ab5b-105ddb898bdd;videoByTag.aspx%3Ftag%3Dmoney_dispatch%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1;videoByTag.aspx%3Ftag%3Dbest%2520of%2520money%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1"}, 'Gallery4');I'm not worried about unexpectedly bad reports in the third-quarter earnings season that gets under way Oct. 7, when PepsiCo (PEP, news, msgs) and Alcoa (AA, news, msgs) will release their latest numbers. If that were the worry, I'd expect the rally to stall somewhere after earnings season started, on actual reports of bad news.

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Instead, I'm worried that the stall will come before earnings season starts, with investors deciding to take their good September-rally profits and avoid the risk of disappointing earnings. If I'm right about that timing, stocks might actually be ready to resume their rally around Oct. 20 -- after the dip -- as earnings season ends.

(And that depends, of course, on what the polls say then about the November elections. Polls that show a Republican runaway will leave my estimate of timing intact. Polls that show the Democrats closing in could delay the start of any rally. Wall Street, if you haven't noticed, is rooting -- and voting with its campaign contributions -- for Republican victories in November.) Time to take profits? Let me explain the logic of that timing. Assume that you're an investor looking at gains like these (and I hope you are) from the Aug. 26 (or thereabouts) low:

Mining-equipment-maker Joy Global (JOYG, news, msgs), up 30.4% as of Sept. 22.

IPod-, iPhone- and iPad-maker Apple (AAPL, news, msgs), up 19.4%.

Copper and gold producer Freeport McMoRan Copper & Gold (FCX, news, msgs), up 27.5%.

Truck-engine-maker Cummins (CMI, news, msgs), up 22.6%.

There's even been a good rally in some of the market's most beaten-up stocks. Gulf of Mexico disaster stock Transocean (RIG, news, msgs) gained 17% from Aug. 26 to Sept. 22.

So what are you thinking as earnings season approaches?

You're thinking, I've had a big gain. Should I let it ride and bet on earnings season delivering an upside surprise?

In many cases, an earnings surprise is what you'll need to lift shares after this rally. The consensus is, in many cases, already built into the stock price. After all, Wall Street analysts have had months to tune and fine-tune their estimates. And in these days, when investors can get analyst estimates from everybody from online brokers to CNBC to MSN Money and Yahoo Finance, these numbers aren't exactly secret.

So "everybody" knows that Wall Street expects Apple to report fiscal-fourth-quarter earnings of $3.97 a share Oct. 19 (the date is unconfirmed). That would be earnings growth of 118% from the $1.82 in earnings per share reported for the company's fourth quarter of 2009.

Even for Apple, significantly beating an earnings increase of 118% isn't easy. That's a bar that's likely to make some investors nervous and willing to take profits before the actual earnings report comes out.

Continued: It's not just hot stocksMore from MSN Money and MoneyShow.com

The recipe for another depression

Jubak video: How far might the market fall?

Why there's such a dividend deluge

Jubak video: Why gold isn't the ideal hedge

Is the economy better than it seems?

Can Europe's once-mighty markets recover?

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Rate this Article Click on one of the stars below to rate this article from 1 (lowest) to 5 (highest). LowThank you for rating.UGR('ratCntrl')High var avgRating=0;avgRating=7.058824; if(avgRating!=0){avgRating=avgRating/2;avgRating=Math.round(avgRating*100)/100;var sDisplayText="Average rating: " + avgRating + " from ";var usersCount=34;sDisplayText = sDisplayText + usersCount;if (usersCount==1)sDisplayText=sDisplayText + " user";else sDisplayText=sDisplayText + " users";avgRatingElem=document.getElementById("averageRating");avgRatingElem.innerText=sDisplayText;} View all top-rated articlesE-mail us your comments on this article Discuss in a message board Stock PicksJubak's Picks

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Connect with JimBecome a fan on FacebookSubscribe to his e-mail newsletterDecision CentersStart InvestingMutual FundsFind Hot StocksSimple StrategiesPower ToolsInvesting for IncomeReal Estate InvestingRecent Articles by Jim JubakThe recipe for another depression 09/20/2010Why there's such a dividend deluge 09/16/2010Is economy better than it seems? 09/13/2010More...Jim's Most Recent Top Stocks PostsTwo discounts for the price of oneSteel maker hits the long ballIs the S&P ready to break out?Fund data provided by Morningstar, Inc. © 2009. All rights reserved.StockScouter data provided by Gradient Analytics, Inc.Quotes supplied by Interactive Data.MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.Msn.Video.createWidget('Gallery8Container', 'Gallery', 500, 230, {"configCsid": "MSNmoney", "configName": "gallery-money-article-site-wide"}, 'Gallery8'); 1CommentNewestOldestBestWorstControversialLost Dollar8 hours agoObviously the market is watching and following the upcoming Political elections in November. I normally do not comment on Politics, but I hope something positive happens(Incumbents get a Clue or if these Hard Right Teabags Have a Viable Plan), and I hope some of these Leaders have a Vision for where we need to be going: Jobs, House Foreclosures, Afghanistan, Trade Deficits, National Deficit, etc. I am not holding my breath, and I don't expect miracles, but Adlai Stevenson always said,"People get the type of Government that they deserve." Make your vote count as we head down the final stretch through the Holidays. I will shut up now. 7 0ReportSpamAdd a commentReportPlease help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of ConductPlease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.CategoriesSpamChild pornography or exploitationProfanity, vulgarity or obscenityCopyright infringementHarassment or threatThreats of suicideOtherAdditional comments(optional) 100 character limitAre you sure you want to delete this comment? var initData = {"strings":{"lc_shw":"true","lc_dtf":"%M/dd/yyyy %h:mm tt","lc_dtf2":"ddd %h:mm tt","lc_gmt":"-5","lc_erg":"Comments are currently unavailable. 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