A Quiet Columbus Day

U.S. financial markets drifted lower in quiet holiday trading as investors waited for earnings season and traders watched for overbought levels to be resolved.

The drumbeat grows louder for a downbeat earnings season with some saying that it will be the worst set of results since the onset of the US financial crisis three years ago.

Estimates have been lowered and it all starts later today with Alcoa (AA) and Yum Brands (YUM) and JP Morgan (JPM) and Wells Fargo (WFC) on Friday.

Bond markets were closed yesterday and it was a Federal holiday so more people were concerned with pleasant autumn weather than the action on Wall Street.

Europe remains in the spotlight as European finance ministers met in Luxembourg to discuss the ongoing uncertainties surrounding Greece and Spain while the IMF again lowered its forecasts for global growth for the rest of 2012 and 2013. The IMF now sees 3.3% growth for 2012 and 3.6% for 2013, both numbers about 0.3% lower than previous estimates.

On a technical basis, major indexes like the S&P 500 (NYSEARCA:SPY) remain stalled at significant resistance levels in overbought conditions with declining momentum. These factors would point to the likelihood of at least a short and shallow correction before the onset of the traditionally strong “six months of the year” that begin around the end of October.

Major Stock Index ETFs:

Major U.S. stocks indexes finished mostly lower for the day on lackluster volume.

Dow Jones Industrial Average (NYSEARCA:DIA) -0.2%

S&P 500 (NYTSEARCA:SPY) -0.35%

Nasdaq 100 (NYSEARCA:QQQ) -0.89%

Russell 2000 (NYSEARCA:IWM) -0.53%

Gold (NYSEARCA:GLD) -0.4%

Oil (NYSEARCA:USO) -0.26%

Bottom line: Caution prevails ahead of earnings season and in quiet holiday trade. Technical indicators call for a short term pause within the ongoing uptrend while Europe and the “fiscal cliff” continue rattling nerves.

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