Last week S&P 500 seemed to have formed beautiful 'head and shoulder', but this week the index shot up and broke upward the downtrend since June 12, rather than fell off the 'neckline'. We still do not know whether this bounce is real or 'fake'.
Yes, Q2 earnings are largely above consensus. However it should be noted that the consensus has been drastically revised down for several months - the consensus for second quarter operating EPS for the S&P 500 was $19.92 at the end of 2008, and it now stands at $14.06 (and this estimate is 5% below March when the market bottomed out). So, it seems that markets are still largely driven by sentiment rather than fundamentals.
Yet, it should also be noted that we saw industrial output in EMU turned positive (MoM) in June, and industrial output in the US also seems to be bottoming out. Thus, there should be more, not less, good news in coming months.
