As earnings season starts, MoneyShow's Jim Jubak is focused on how the market reacts to the earnings report in the hope of finding some bargains.

Earnings season starts officially with Alcoa (AA) on October 8. What I'm really interested in seeing during this earnings season is not so much what the earnings growth is but how the market reacts to it. You've got to remember that we're at this very peculiar place that, on September 18, the S&P hit an all-time high at, essentially, 2020 intraday. Since then, the market has been sliding, people are nervous, but the whole retreat really is back to only 1950, so we've lost 70 points after hitting an all time high.

The question is, if we go into this and companies announce good earnings, are they going to be good enough given that we're an all-time high and are they going to be good enough if companies then say, “Well, you know, fourth quarter global growth looks like it's going to be softer.” That, I think, is what we're going to hear from most companies is what we're hearing from all of these sort of macroeconomic things. The International Monetary Fund, for example, has lowered its forecast for 2015 growth from 4%; this is global, to 3.8%. It doesn't sound like a whole lot but it's going in the wrong direction and 4% is already low for global growth. We've got a market that's only slightly down from all time highs. We've got a quarter that's not supposed to bring us a whole lot of really great earnings news. Expectations are like 40% to 5% earnings growth and I think we'll actually beat that, but the question is when we get guidance are companies going to give enough so that can people go into this market and say, oh okay I know we're close to an all-time high, we're down 70 points, but it's worthwhile given the glorious prospects these companies have just painted for me to get back into the market.

What I'm actually looking for is two things. One, is I'm looking for companies that report good news but not good enough news. I'm looking at small-cap momentum stocks there. I'm looking for some names that I really want to buy to maybe crash by 10% to 20%, because their earnings don't meet expectations for incredible growth. If you're a momentum stock, you're supposed to produce earnings growth of 40% this quarter and then 45% the next quarter. I don't think we're going to see that, so there is the possibility of some bargains in those names. On a wider basis, what I'm looking for to see is for companies that report decent earnings but that aren't momentum stocks, just like blue chips, whether those earnings are going to be good enough. I think the answer to that is probably no and I think that means if they're not that we're going to see this market continue to slip sideways for a while. I don't necessarily see a huge correction going on here. Remember, we haven't had a 10% correction in a while, but 10% corrections are the norm, so if we get one we shouldn't be freaked out by it. We ought to go back to saying, “Oh, this is the way the market behaves after a huge rally,” so that's what I'm looking for. I'm looking for bargains in small-caps and momentum stocks and I'm looking to see whether good earnings from blue chips disappoint the market as a whole.