Well, that was a quick end to a pretty good rally. Just when the market didn't have any more major hurdles in its path, all the recent buyers got cold feet. Honestly, though the rally that unfurled over the prior four days clearly lacked follow-through on the fifth, it's too soon to assume the market can't or won't keep chugging higher. On the flipside, today's doji bar - a session with amazingly low volume - could very easily become the pivot point for a pullback. We'll just have to wait and see, which we talk about in detail below. First, let's talk about the left turn that fourth quarter's earnings season took a few days ago. Q4 Earnings Results Getting Uglier? Before we open this can of worms, I want to stir up a philosophical hornet's nest regarding the usefulness of these - or any - earnings updates. Have you guys (and ladies) ever heard of a guy named Jeff Macke? He's one of the regular columnists and commentators over at Yahoo! Finance. Yeah, well, Macke posed an idea in this column yesterday that per-share earnings - as a way of determining a stock's value - was on the way out due to extreme irrelevancy. He was talking more about EPS data for individual companies than earnings figures for the market as a whole, but the premise applies either way... he's saying that particular number is meaningless for investors. If you didn't catch the article, it may be worth a read, even if only to clarify (in your head) what's important and not important to you as an investor. I get what he's saying, but I don't agree with it. I don't agree with it because, if it's not about earnings, what's it all about? Yeah, all the lines below an income statement's top line can be poked and prodded and massaged to make the bottom line look bigger than it probably should be, but reality can't hide from accountants forever. Think about it like this: If you had an extra $100,000 laying around and someone you know and trust said they had a proposition for you to be a silent partner in a business, what would be the first thing you asked? My first question would be what kind of profits would this business be capable of producing. I'm willing to bet your first question would be something along those lines too. Why would a stock-based investment be any different? The only thing I see as a problem with using earnings as a tool to judge the merits of a company is that someone else determines how much of a publicly-traded company's profits are paid out to shareholders, and/or how much of those profits are retained for future growth. But, rare is the case where the profit-reinvestment policy is not clear before plunking your money down on the barrelhead. I guess my question/problem is, if not earnings (past, present, and future), what IS the best way to judge the value of a stock? Anyway, I just thought it was an interesting article for all of you to look at, if only as a mental exercise. As for me and the folks who bring you the SmallCap Network newsletter - and the website - we'll keep earnings as the ultimate long-term focal point until there's something clearly better to use. On that note.... As of Monday, the 10th, the S&P 500 is on pace to earn $28.70 per share for the fourth quarter of 2013. That's, amazingly enough, LESS than the $29.23 the S&P 500 was supposed to earn when we had right around half of the S&P 500's constituents' numbers a week and a half ago. The $28.70 figure is based on about 80% of the S&P 500's companies' fourth quarter results, so it's unlikely to change much from here. It's still a decent number, well up from the year-ago figure. It's the first time in a long time, however, we've seen a major dip in the projected earnings total more than halfway through earnings season. It gets worse. The estimates for Q1 and Q2 were also dialed down. The S&P 500 is now valued at a forward-looking (2014) P/E ratio of 15.0. The trailing P/E is 16.9. That's palatable enough, though it doesn't leave a ton of room for gains. Oh, and for what it's worth, a s it stands right now, only 66% of reportees have topped estimates, while 23.5% of reporting companies missed analysts' earnings projections. That's a little worse than the 69% of companies that had managed to beat estimates as of a week and a half ago, when only 20.4% had missed estimates. The 66% and 23.5% figures are now just aligned with the normal beat/miss ratios, but considering we got a whole slew of earnings warnings before kicking off fourth quarter's earnings fiesta, one would have thought Q4's earnings season was going to be a piece of cake. Still On the Fence After All Ever heard the term "expect it when you least expect it"? The market has absolutely mastered the idea, doling out surprises not at logical times, but at points in time when a move or a clue theoretically shouldn't be popping up. That's what happened today. Based on yesterday's surge above some key moving average lines, the market should have been full-on bullish today. What we saw today, however, was that traders are more than a little hesitant to keep forging ahead. In fact, I can't help but wonder if the rally ran out of gas early this morning, with the car finally starting to roll backwards in the latter half of the day. That's not an idea that just materialized out of thin air. The shape of today's bar for the S&P 500 (as well as for the other major indices) suggests that's what's going on. The open and the close were both near the low for the day, and the bulls struggled to make any kind of meaningfully-higher high on Wednesday. The S&P 500's peak of 1826.55 today was just a tad above Tuesday's high of 1823.54; the bulls just didn't have anything left to give. The volume was rock-bottom today too, telling us there was NO faith in yesterday's pop. A lack of confidence and an unwillingness to follow-through is the last thing the bulls want to see right now. Take a look. On that note, I'm going to defer to a higher power here when it comes to broad market analysis, and show you some of what John Monroe wrote in today's SmallCap Network Elite Opportunity newsletter (and my apologies to the SCN EO crew for poaching their stuff, but it IS an accolade). John wrote: ...With that being said, I think we can expect the markets to move higher assuming one thing doesn't happen ... The single most important technical clue that could completely negate yesterday's sharp move higher across the major indexes is actually quite simple. I've included a weekly chart of the NASDAQ here for your review. Like we've said all along, ever since this rally began, every time the NASDAQ has broken below the 3X3 DMA (blue line) and closed, it has managed to find itself back above it within just a few weeks. Until proven otherwise, I think we can assume this theme is simply going to continue. More importantly, as longs as we make a new multi-year high on the NASDAQ without a break and close below the 3X3 DMA first, I think we're simply going higher in the weeks and potentially even months ahead.... ...I'm definitely not suggesting that's what's going to happen because that's far too leading in nature. However, what I am saying is that's the one possible technical scenario that would suggest these markets aren't going higher yet. So, unless that happens, it's all systems go to the upside and assuming the NASDAQ breaks out into new high territory as soon as this week, I suspect we're headed for around 4,400. Well, that's not all the SmallCap Network Elite Opportunity newsletter had to say about it. In fact, I didn't give you the very best stuff Monroe had for SCN EO subscribers today. But, the snippet you did get summarizes our current reality quite well right now. I've said it before, but I'll say it again... if you want to keep a firm handle on the near-term comings and goings of the market, you're not going to find a better tool than John Monroe's daily analysis. He's a master at using the 3x3 DMA (displaced moving averages) he mentioned in his comments, and yes, they work! They work about as well as anything I've ever seen, in fact. You can find out for yourself, for free. Here's how, or cut and paste this link: https://www.smallcapnetwork.com/pages/SCNEO/v1/