Regardless of any credit issues, housing, inflation or currency problems, earnings are always the key to market performance. There's no denying the bottom line, and the quarterly report cards can project where we go in the future. Currently, the earnings season looks to be as dismal as one can remember. Perhaps some clarity will help us figure out where the market is going.

Down, Down, Down!

The impressive streak of earnings growth is about to come to an end. Something like 14 straight quarters of higher composite earnings is amazing, yet the projection for this first quarter is negative. Of course, pessimism is always discounted, so we may see some 'relief' from 'not so bad' of numbers. What we should extract from this earnings season is not the numbers, but the forecast and sentiment going forward. It's always subject to interpretation, but suffice to say the market will discount the pessimism quickly. In this recessionary environment, any whiff of optimism will surely be bought.

Groups To Watch For

Are we in a recovery period, a deep recession or muddling through along the bottom? That's the big question, and there are different sectors that lead for each stanza. A recovery period will be led by industrials, durables and retail, along with banks and financials.

If these are strong, then optimism about the economy will be at its highest. A deep recession will likely see strength from tobacco, alcohol and gaming...the vices people turn to in bad times, along with names like PG, WMT, KMB, and other non-durables. Finally, muddling through on the bottom could see the recent leaders continue, as ag stocks, metals and gold will likely be the main grabs.

Price Headley is the founder and chief analyst of BigTrends.com.