…stock performance correlates, at the end of the day, to corporate profit growth.

We need to determine whether they are likely to peak, bottom or continue their current path.

My key findings, based on the latest info:

• Although financial companies' earnings are extremely weak, they show no signs of bottoming. The process of deleveraging—or shedding debt and losses—is taking a big toll. They can't take full advantage of the "carry trade" (in which they borrow cheap from the Fed and lend rich to companies) because their savaged balance sheets require them to retain more capital than usual and the creditworthiness of big borrowers is under assault.



• Technology companies' earnings are probably peaking amid a decline in buying power among consumers and enterprises.



• Basic materials companies' earnings are probably close to peaking. Although they look fantastic now, we need to be extra cautious about fertilizer makers, chemical producers, steelmakers and the like. They have been leaders of the past few years, but we need to see whether constrained supplies will maintain the upper hand against slipping demand.



• Energy companies' earnings are still extremely strong. Higher crude oil and natural gas prices are a windfall that directly fatten the bottom line. However, we need to be aware that many energy companies have sold their production forward as a hedge and will not take full advantage of the higher prices. The current quarter's earnings are going to be off the charts, making most of the stocks cheap. But we need to look ahead six months to a time when commodity prices may be flattening out, if they're not actually lower. Energy producers will still be very cheap if crude oil futures fall by $40 a barrel and natural gas falls by $3, but they'll probably get pummeled anyway as shareholders fear that these historically cyclical stocks are headed for a big down stroke.

Bottom Line

Basic materials and commodity companies have been market leaders for five years.

If their earnings are peaking amid the advent of a global recession, their shares will suffer and the market will lose key leadership.

So stay vigilant. Don't assume that trends now in place will remain so forever.

To be sure, demographic trends worldwide are likely to keep the commodity rally going for several more years, if not another decade. But there will be hiccups along the way, and the next few months could possibly bring one of them.

Jon Markman is editor of Trader's Advantage and regular contributor to Investors Insights. To get this type of actionable insight from Jon and other InvestorPlace Media experts go to www.InvestorPlace.com today!