A rebound in financial stocks led the market higher yesterday. Citigroup Inc. (NYSE: C) was the catalyst for the bounce as Q3 earnings exceeded analysts’ estimates, and the stock jumped 5.6%.

This will be a busy week for corporate earnings with 11 of the 30 Dow stocks and 20% of the S&P 500 companies due to report Q3 results.

In addition to financial stocks, homebuilders rallied after a report from the National Association of Homebuilders showed that its housing market index rose 3 points to 16 in October. 

Energy stocks closed lower, influenced by earnings from Halliburton Company (NYSE: HAL) that failed to meet estimates. McMoRan Exploration Co. (NYSE: MMR) fell 13% on a Q3 report that revenues missed estimates despite a lower loss versus the same period last year.

Technology stocks were strong in advance of earnings from Apple Inc. (NASDAQ: AAPL) that were released after the close. But semiconductor stocks were weak and not able to keep up with advances in the broader tech group.

Despite a decline of 0.1%, the U.S. dollar appeared to have little influence on stocks. Treasurys rallied on Monday as rumors of an impending purchase of bonds supported prices.

At the close, the Dow Jones Industrial Average was up 81 points to 11,144, the S&P 500 rose 9 points to 1,185, and the Nasdaq gained 12 points to 2,481. Volume on the NYSE failed to exceed 1 billion shares with just 995 million shares trading. But advancers outnumbered decliners by almost 2-to-1. The Nasdaq crossed 486 million shares with advancers ahead by the same margin.

Crude oil for November delivery rose $1.83 to $83.08 a barrel. The Energy Select Sector SPDR (NYSE: XLE) gained 16 cents, closing at $59.37. Gold rose slightly despite strength in the dollar, with the December contract up 10 cents, settling at $1,372.10 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) closed at 204.95, up 1.11 points.

What the Markets Are Saying

Stocks moved ahead yesterday on low volume despite the overbought condition of the major indices. Both the S&P 500 and Nasdaq made new recovery highs, with the Nasdaq up in anticipation of solid earnings from several household names including Apple.

But investors’ focus on Apple failed to pay off. After the close yesterday, the technology giant’s earnings were shown to have soared in their fiscal Q4 as a result of a successful product introduction for the latest generation iPhone. But sales of the new iPad missed expectations, and the stock fell more than 5% in after-hours trading despite a profit of $4.64 versus $2.77 a year ago and earnings that exceeded analysts’ estimates of $4.10 a share. Apple also said that it expects earnings of $4.80 a share for the December quarter, but analysts had been looking for the next quarter to produce $5.03 a share.

The response to Apple’s earnings illustrates that when expectations run high, with stock prices in the stratosphere, the facts had better meet or exceed expectations. If they don’t, stocks will be hammered to a level where they become a better value. So as the indices approach April’s market peak, companies will find that stockholders will be much more critical than at this time last year when owners were happy to see any small improvement.

Now in addition to the barriers presented by overbought indicators (discussed last week) and an oversold dollar (discussed yesterday), today we see another more serious problem and one that even could reverse trends — the failure of companies to meet the current lofty expectations. The evidence continues to grow that stocks may find it slow going in October compared to the wild days of September. 

I remain bullish but much more cautious than at this time last month.

For one stock to sell now, see the Trade of the Day.

Today’s Trading Landscape

Earnings to be reported before the opening include: A.O. Smith, American Electric, Astec Industries, Bank of America, Bank of NY, Coca-Cola, Cybex, Diamondrock Hospitality, Domino’s Pizza, EMC, Forest Labs, Goldman Sachs, Harley-Davidson, Illinois Tool, Johnson & Johnson, Labranche, Lockheed Martin, McClatchy, MGIC Investment, Millicom, New York Times, Occidental Petroleum, Omnicom, Parker-Hannifin, Peabody Energy, Polaris Industries, State Street, Supervalu, UniFirst, UnitedHealth and Weatherford.

Earnings to be reported after the close incude: Altera, Badger Meter, Bigband Networks, Boston Scientific, Cree, FSI International, Fulton Financial, Gilead Sciences, Hancock Holding, Hawaiian Holdings, Hub Group, Intuitive Surgical, Juniper Networks, Manhattan Association, Marten Transport, Pinnacle Financial, RC2, SLM Corp., Sonic, Stryker, Tempur-Pedic, Tupperware, United Rentals, Waste Connections, Western Digital and Yahoo.

Economic reports due: ICSC-Goldman Sachs store sales, housing starts (the consensus expects 580,000), and Redbook.

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.