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 Traders are hoping earnings will continue to emerge as a bright spot Tuesday, when a string of major blue chips report ahead of the market open and Apple reports after the closing bell.

IBM [IBM  175.28    -0.26  (-0.15%)   ] reported after Monday's close, providing an earnings beat and a bullish forecast. IBM's profits of $3.66 billion, or $3.09 per share, also came on a stronger-than-expected 12 percent increase in revenues to $26.67 billion. The earnings report also provided some solace for investors in that it was positive news for tech but also indicated that all kinds of businesses are still spending.

IBM's report landed at the end of a particularly anxious day for stocks. The Dow finished down 94 points, or 0.8 percent, at 12,385, after being down as much as 183 points. The S&P 500 lost 10 points, or 0.8 percent to 1305, and the Nasdaq slumped 0.9 percent to 2765. The financial sector was the worst performer, down 1.4 percent. It is now down 8.2 percent for the year, and it is the only S&P sector not to show a year-to-date gain.

Financials were weighed down by concerns spreading from Europe that the EU stress tests were not tough enough to expose the real weaknesses in the European banking system. Spreads on peripheral sovereign debt widened dramatically, with the Greek 2-year yielding nearly 40 percent. Italian banks performed so poorly that Unicredit was briefly halted ahead of the closing bell in Milan, and yields on Spanish and Italian 10-year bonds rose above 6 percent.

European leaders hold a summit on Thursday to address Greece, and traders expect lots of headline risk leading up to that meeting. Traders are also watching the lack of progress in debt ceiling and deficit reduction discussions in Washington, which have been increasingly stressing markets.

Bank of America [BAC  9.72    -0.28  (-2.8%)   ] was among the bank stocks hit Monday, ahead of its Tuesday morning earnings report in which it is expected to take a hit related to a mortgage-related settlement. Bank of America closed below $10 for the first time since March, 2009 and was the worst performing Dow stock.

Other companies reporting before the opening bell include Goldman Sachs, Wells Fargo, Bank of NY Mellon, Novartis, Johnson and Johnson, Peabody Energy and State Street. Apple, Chipotle, VMWare, CSX and Yahoo reported after the close.

Companies reporting results on Tuesday .

 

The action in the financial sector, however, is somewhat disconcerting. "Financials in the U.S. and Europe are a concern," he said. "When they're leading the way to the downside, it's a sign the market is vulnerable."

"When you combine seasonal inertia and event risk, for the next couple of weeks, the key words are going to be patience and skepticism," said Kotick.

Redler watches the market's short-term technicals and says stocks held an important level Monday. "One of the last lines of the defense the bulls are watching was the 1294 to 1296 area (on the S&P 500), which was the 61.2 percent retracement level as well as the breakout level above the lower pivot point of late June," he said. The S&P's low of the day was 1296.

Redler said the selling may not be over, but it is an opportunity for investors who want to buy the dip. "There's two things. There's a stealth bull market going on right now, as well as a bear market. It depends on what sectors you're actively involved in. There are stocks making new highs, historic highs, and then there's stocks that have been technically not performing, under their moving averages, and they can't rally when the market rallies," he said.

As stocks faltered, Treasurys also fell Monday on worries that the political wrangling in Washington will not lead to an increase in the debt ceiling. Rick Klingman, managing director of Treasury trading at BNP Paribas, said Congress will likely approve the debt ceiling extension but that doesn't mean the AAA credit rating of the United States won't be affected.

"It depends on how big the cuts are. If it's only a trillion to a trillion and a half, I don't think that's big enough," he said.

"A downgrade is one thing. A default is another," he said, adding he does not expect the U.S. to default on its debt.

"Barring a deficit breakthrough, Europe is going to keep dominating things this week," he said. The market is "a little skittish, cognizant of the fact there's two crisis stories going on. It makes you want to be long."

The dollar edged higher Monday, but gold was the clear winner of the day. It finished above $1,600 an ounce for the first time, at a new all time high.

The only data Tuesday is housing starts, at 8:30 a.m.

Traders are hoping earnings will continue to emerge as a bright spot Tuesday, when a string of major blue chips report ahead of the market open and Apple reports after the closing bell?

A. TRUE
B. FALSE 

It depends on how big the cuts are. If it's only a trillion to a trillion and a half, I don't think that's big enough," he said?

A. TRUE
B. FALSE