Although the earnings season officially kicked off last week with Alcoa reporting first quarter earnings, the real fun starts this week with seven Dow components reporting.

Among the Dow components reporting are Citigroup and JPMorgan Chase. The importance of these earnings reports cannot be stressed enough as investors look for any kind of sign that the credit crisis is over or at least coming to a close. There are a number of other financial companies due out this week: Merrill Lynch, Washington Mutual, Wachovia, and Wells Fargo to name a few.

I know expectations for the financials have been brought down over the last five or six months, but have they been lowered enough? I don’t think they have. When I look at the chart of the S&P Select Financial Spyder, and the rally over the last four weeks, I question whether or not the expectations meet the reality. In fact, the rally simply brought the XLF back up to its downward-sloped trend line and back up to an overbought level.

This is just covering the financials, but there are seven other Dow components reporting this week. Johnson & Johnson (JNJ) reports on Tuesday, along with Intel (INTC). Wednesday, Coca Cola (KO) and IBM (IBM) both report, and on Thursday, we will hear from Pfizer (PFE) and United Technologies (UTX). The lone Dow component reporting on Friday is Caterpillar (CAT).

There was a clue sent out last week about what we should expect in the earnings. Did you see the clue? You probably did and may not have known it was a clue. When UPS issued an earnings warning last week, that was your clue.

For consumer products companies like Johnson & Johnson, Intel, Coca Cola, and IBM, having UPS come out and announce that the demand for package shipping is down, is an ominous sign. If UPS’s services are not needed to ship products, are products selling? More than likely, the products are not selling like they were a year ago.

While the sentiment towards the overall market has grown more pessimistic over the last three months, in the last three weeks the bearish sentiment has slipped from its peak in mid-March. I am basing this on the 21-day moving average for the CBOE Equity Put/Call Ratio and Investor’s Intelligence. The moving average for the put/call ratio peaked out on March 20 at 0.93 and has since slipped back down to 0.81. The bearish percentage on the Investor’s Intelligence report peaked at 44.7 on March 19. It is now down to 38.5.

What this tells us is that the overall sentiment, while still bearish, it has slipped a little over the last 3-4 weeks. Are investors looking for the earnings season to rescue the market?

If they are, I have the feeling they are going to be disappointed. And in the words of Ozzy Osbourne, we may be “going off the rails on a crazy train.”

Good luck and good trading,

Rick

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