The Dow seems to be in an all-or-nothing mood lately. After yesterday's huge losses, which extended Mr. Market's losing streak to five days, the Dow Jones Industrial Average (INDEX: ^DJI) is rebounding hard. In early morning trading, the index is up 0.74%. Though it's still below the psychologically important 13,000 threshold, with big swings like this, the Dow could easily jump back above the barrier on one big day.
The catalyst
All eyes are on Alcoa (NYSE: AA) this morning. The company shattered earnings estimates, coming in at $0.09 per share. This annihilates the analyst estimates of a $0.04 loss, and stands in stark contrast to their loss of $0.18 per share in the fourth quarter of 2011. Understandably, the company is trading 8.1% higher on the news.
While the news is undoubtedly the Dow's biggest catalyst for today, it could have been bigger. The company has the second-lowest weighting on the Dow at only 0.55%. That means the index is likely trading higher on general enthusiasm about the beat more than anything else.
The cloud
Of course we aren't out of the woods yet. Despite falling 5.1% today, the Volatility Index (INDEX: ^VIX) is still up around 30% from the end of March. That means we can expect bigger movement than we've seen in the past few months, and with the eurozone showing continued weakness, that movement could be downward.
Keep an eye particularly on the elections in Greece and France to see how tensions in the continent play out. While they seem to have subsided a bit for now, with Italy and Spain showing significant weakness, and France and Germany continuing to be the relatively stronger nations (though even Germany couldn't sell all its 10-year bonds recently), they could froth up again and send markets on another roller-coaster ride.
We've got additional uncertainty on these shores as well. With gas prices heading higher, job growth slowing, and the Fed no longer open to additional quantitative easing, I wouldn't be surprised to see a bit more market easing in the weeks ahead.
The forest from the trees
Putting everything in perspective, though, the broad markets are still up quite a bit for the year, and a small pullback isn't the worst thing. Financial heavies Bank of America (NYSE: BAC) and JP Morgan (NYSE: JPM) are still up 60% and 32% for the year, respectively, and today are jumping 4.1% and 2.4%, respectively. Given their still historically low price to book values, both could still be great long-term plays, even after these big run-ups.
How to play it
If there's one thing to be taken from today's news it's that earnings matter. Alcoa, despite a small weighting on the index, is still sending the Dow higher today. To get a jump on the five stocks investors need to watch this earnings season, you can click here now. Our chief investment officer and some top analysts all agree these are the ones you don't want to miss.
