Market Outlook
The Week Beginning Monday,
July 26, 2010



Preface

I believe that it is important to point out to all my readers, especially those who are not already members of S.O.M.E. (as members are already well-aware of my trading strategy!), that the more volatile the market becomes, whether it trades up or down, is more beneficial to us, as the returns on our options increase dramatically, as observed throughout June and July, so far.

I must say I am a great supporter of the bulls, but will play-along with the bears to extract as much value from our options plays, as possible. I am a great believer in things moving forward and improving as time progresses but I also know that we have to play-the-game to extend our profits. The only catch in this type of market is “knowing” or realizing in which direction it will take, and it seems that we have been able to fulfill this decision in most cases, to gain our profitability.

Key Events This Week



up and coming

Note:-All earnings dates listed below are tentative and subject to change.

This Week’s Economic Reports

There are still quite a few major economic indicators available this week, which are:-

Monday –

• New homes sales.

Tuesday –

• The Case-Shiller 20-city home price index for May, and

• The Conference Board's Consumer Confidence Index for July.

Wednesday –

• U.S. petroleum supplies,

Thursday –

• Weekly initial jobless claims,

• The Fed's Beige Book

Friday –

• Second-quarter gross domestic product,

• The Chicago Purchasing Managers' Index for July, and

• July consumer confidence as measured by Reuters and the University of Michigan.

This Week’s Major Earnings Reports

earnings

Monday –

• Sohu.com Inc. (SOHU),

• Lorillard Inc. (LO),

• SL Green Realty Corp. (SLG),

• Albemarle Corp. (ALB), and

• Universal Health Services Inc. (UHS).

Tuesday –

• AK Steel Holding Corp. (AKS),

• BP plc ( BP),

• CIT Group Inc. (CIT),

• Cummins Inc. (CMI),

• Domino's Pizza Inc. (DPZ),

• DuPont (DD),

• L-3 Communications Holdings Inc. (LLL),

• LCA-Vision Inc. (LCAV),

• Lexmark International Inc. (LXK),

• Office Depot Inc. (ODP),

• Lockheed Martin Corp. (LMT),

• United States Steel Corp. (X),

• Teva Pharmaceutical Industries Ltd. (TEVA),

• Under Armour Inc. (UA),

• Valero Energy Corp. (VLO),

• Aetna Inc. (AET), AFLAC Inc. (AFL),

• Broadcom Corp. (BRCM),

• Buffalo Wild Wings (BWLD),

• CB Richard Ellis Group Inc. (CBG)

• Cephalon Inc. (CEPH),

• DreamWorks Animation SKG Inc. (DWA),

• Fiserv Inc. (FISV),

• Massey Energy Co. ( MEE) and

• Panera Bread Co. (PNRA).

Wednesday –

• ArcelorMittal (MT),

• The Boeing Company (BA),

• Coca-Cola Enterprises Inc. (CCE),

• Comcast Corp. (CMCSA),

• ConocoPhillips (COP),

• Constellation Energy Group Inc. (CEG),

• International Paper Company (IP),

• M/I Homes Inc. (MHO),

• Martha Stewart Living Omnimedia Inc. (MSO),

• P.F. Chang's China Bistro (PFCB),

• Sprint Nextel Corp. (S),

• Akamai Technologies Inc. (AKAM),

• Cincinnati Financial Corp. (CINF),

• Cliffs Natural Resources Inc. (CLF),

• Goldcorp Inc. (GG),

• Green Mountain Coffee Roasters Inc. (GMCR),

• NetLogic Microsystems Inc. (NETL),

• Skechers USA Inc. (SKX), and

• Sturm, Ruger & Co. (RGR).

Thursday –

• Avon Products Inc. (AVP),

• Barrick Gold Corp. (ABX),

• Celgene Corp. (CELG),

• Colgate-Palmolive Co. (CL),

• Exxon Mobil Corp. (XOM),

• Motorola Inc. (MOT),

• Northrop Grumman Corp. (NOC),

• Sony Corp. (SNE),

• Strayer Education Inc. (STRA),

• Wynn Resorts Limited (WYNN),

• Chiquita Brands International Inc. (CQB),

• Coinstar Inc. (CSTR),

• Expedia Inc. (EXPE),

• First Solar Inc. (FSLR),

• McAfee Inc. (MFE), and

• MetLife Inc. (MET).

Friday –

• Arch Coal Inc. (ACI),

• Chevron Corp. (CVX),

• ITT Corp. (ITT), and

• Merck & Co. Inc. (MRK).

Outlook for This Week



week ahead

Last week saw Stocks present their second best week of the year, with the Dow up 3.2 percent at 10,424; the S&P 500 up 3.6 percent at 1102, and the Nasdaq, up 4.2 percent at 2269. The Russell 2000 was up 6.6 percent, and is now up 4.4 percent for the year. The Nasdaq is flat for the year, and the Dow is down just 0.03 percent. The S&P is still down about a percent year-to-date, but it crossed above the important 1100 level Friday.

The not-so-surprising, positive surprises in corporate earnings news could steer the stock market in the week ahead.

With the European bank stress tests out of the way, investors may shift focus to what's got the stock market perking up in the last couple of days. That would be the 42 percent jump in S&P 500 profits so far this quarter, combined with cautious, but not worrying comments from corporate executives on the outlook.

"My view is the message that's come from earnings season has been very strong," said Barclays Capital's Barry Knapp. "What we've heard from transport companies, the package carriers, like UPS, the rails like UNP, the airlines is that revenues are up a lot. The outlook is good. Guidance is getting pushed higher, and there's no sign of a slowdown in the next quarter."

Investors this week will continue to review second quarter earnings reports for signs of a strengthening economy. Four components of the Dow Jones Industrial Average and 135 other companies in the Standard & Poor's 500 Index are scheduled to report quarterly results.

With more than a third of the S&P 500 reporting so far, 78 percent of the earnings beat estimates and 67 percent of companies have beaten revenue estimates. But this good flow of earnings news will have to fight it out with a moderate stream of economic data, which could disappoint in the coming week. "The risk reward in the macro numbers this week is pretty good. The earnings are coming in strongly so you have to think we have a little bit of upside here," said Knapp, who heads U.S. equity portfolio strategy.

Industrial stocks were the best performers of the week, lifted by positive earnings news. The group was up 7.2 percent, followed by materials, up 7 percent, and consumer discretionary, up 5 percent. Treasurys saw 2-year yields touch a record low this past week, and the 10-year stayed under 3 percent but touched 2.998 Friday. As stocks climbed Thursday and Friday, Treasury yields climbed as prices fell.

"Right now, we're allowing this stock market to trade on 12 times earnings with all of the much stronger earnings and a sub-3 percent Treasury," said Wells Capital Management chief investment strategist James Paulsen. In order for the market to move out of its range, Paulsen said there has to be good news on jobs.

"I think you need a good piece on jobs, but if we get that, it could be violent. You could have a huge movement in stock prices and bond prices," he said.

Expectations for this Week

S&P 500 Index (SPX)

An encouraging fact is that the S&P 500 Index (SPX) was able to substantially break above its 50-day moving average, along with breaking a three-month downtrend line. Again, we have some major concerns regarding the world economy – but price action is what matters, and this is a step in the right direction for the bulls.

SPX-july23,2010


Again, although there are some positives, by no means is this an all-clear buy signal. Last year at this time we were very bullish on the overall market and rode it up into the April peak. Unfortunately, things aren't quite that clear today, and for this reason shortening your timeframes or making sure you have hedges in place is recommended.

SPX-80 weeks



Financials

With that said, the action in the financials is one area that has is concerning. Numerous names have had poor reactions to earnings and the price action on the XLF is rather weak.

XLF-july26,2010



Meanwhile, the 50-day buy-to-open (BTO) put/call ratio on the XLF has peaked and rolled over sharply. This rollover looks quite bearish, especially when you consider the rally in 2009 was accompanied by a rising put/call ratio. Additionally, I see huge August puts relative to calls in at-the-money options. With heavy put open interest, there is always the risk of a major delta hedge-based decline from that put open interest.

XLF- 50 days



The Euro

The price action in the euro is very encouraging. There seems to be a lot of questioning as to whether the euro will exist in a few years or not! Nonetheless, for today's market, strength in the European currency is a great sign that some of the recent European sovereign debt issues could be subsiding. However, there is continued skepticism toward the currency.

FXE-july26,2010



CBOE Market Volatility Index (VIX)

As mentioned several weeks in a row now, the CBOE Market Volatility Index (VIX) is down near support from its 200-day moving average. This level continues to act as strong support. A break beneath this level could signal volatility is subsiding and a nice summer rally is ready to take off. Keep your eyes on this one.

VIX-july26,2010



Sentiment

Another potentially major positive is that overall sentiment continues to be very negative. Should we see a string of good news, this could be very powerful. Sentiment polls still show investors are near past levels of bearishness consistent with major market bottoms. Last week, I noted how last July saw a well-publicized head-and-shoulders topping pattern that was dead wrong, and coincidentally marked a huge end-of-year rally, and how we were seeing the exact same thing this July. One other similarity between last July and this July is the Investors Intelligence poll, which has the same number of bears and bulls. Last year, after such a configuration, the Dow rallied almost 1,800 points in two and a half months.

bulls-bears



Economic News

Monday

Two important housing reports and GDP

The week opens with two important reports on housing.

The Commerce Department's report on new-home sales in June, due on Monday, is likely to be awful. Yes, a report of, say, an annualized 309,000 units would be up 3% from May. But that's still among the lowest on record. This represents the expiration of the new-home and existing-home tax credits.

The S&P/Case-Shiller report on home prices in May, due Tuesday, is expected to show prices rising slightly in 20 major markets. That would confirm a price trend noted in the National Association of Realtors existing-home sales report for June.

Tuesday: Consumer Confidence, due from The Conference Board. This is expected to rebound from a weak reading in May.

Wednesday: The Federal Reserve's Beige Book report, a narrative look at the economy, may help explain why Fed Chairman Ben Bernanke said the economic outlook was "unusually uncertain."

Durable-goods orders, from the Commerce Department, is likely to show a decline for June. But don't worry too much. This report is historically volatile.

Thursday: Jobless claims. This Labor Department report is the proxy for the monthly jobs report, due Aug. 6. It remains stubbornly high -- at 460,000 or higher. A big drop could move stocks.

Friday: Gross domestic product for the second quarter. This is the first estimate of how the economy performed. The consensus estimate is for 2.5% annual growth, less than 2.7% for the first quarter. IHS Insight, an economic consulting firm, thinks the rate may come in at 3%.

The Reuters-University of Michigan Sentiment Index also comes out. An early reading of that data showed a big drop, because of the BP oil spill, shrinking stock prices and gloom about the jobs picture. IHS sees the index rebounding.

Comments

Goldman Sachs economist Andrew Tilton said the big numbers he's following are Friday's release of second quarter GDP and any industrial data, particularly the durable goods for June. "Collectively there's a lot of information on the industrial situation next week and that will show whether that trend is going to extend or whether what we saw in the ISM is short-lived," he said. The ISM, a measure of manufacturing, was weaker than expected at 56.2, when reported at the beginn Economists have been paring back second quarter GDP after a string of softer-than-expected data. Goldman cut its GDP forecast to 2 percent from 3 percent last week.

Tilton said GDP will be more informative than usual because this release will include revisions going back to 2007. "One of the issues that forecasters disagreed with this year is whether employment overshot to the downside," he said. Revisions to GDP, and by extension unemployment, may bring clarity to that.

"Our view is the labor market is terrible, but our view was not a surprise given how bad the economy was," he said.

Jefferies managing director Art Hogan said the market is expecting a 2.5 percent GDP. "If we get a negative surprise, and the market can only assume we only revise the numbers down, that could be bad for the market," he said.

FINANCIAL REGULATION

**An advisory committee of the Food and Drug Administration on Tuesday will review a Medtronic Inc. (MDT) spine device using a protein designed to promote bone growth. On Friday, the agency said it was concerned about a higher number of cancer cases seen among patients treated with a spine device known as Amplify. Medtronic is seeking FDA approval of the device, which is designed to stabilize vertebrae in the lower back in patients with degenerative disc disease.

**The House is expected to vote as early as next week on legislation that tightens regulations of offshore drilling, formally restructures the agency that regulates such drilling, and removes the cap on economic damages paid to residents and small businesses by oil companies after oil spills. House Democratic leaders plan to remove some controversial features from the legislation to improve its chances of passage, a senior House Democrat said Thursday. A day earlier, a top House Democrat expressed confidence that a measure that would effectively ban BP from winning new offshore oil exploration licenses would be included in the bill.

**The House also is expected to vote by the end of next week on legislation that would require the president to create a four-year national manufacturing strategy to advance the country's interests in the global economy. The act would require the president to conduct a comprehensive analysis of the country's manufacturing sector. The results would yield a four-year strategy that would include long- and short-term goals for the country's manufacturing businesses. The national strategy would be reported to Congress and made available to the public.

Overseas Concerns

Scotland's government has rebuffed a request by a U.S. Senate committee to send two Scottish officials to testify at a hearing Thursday that will explore the country's release last summer of the convicted Lockerbie bomber amid allegations that BP may have influenced the decision. The Senate has also invited BP Chief Executive Tony Hayward, BP Special Adviser Mark Allen and former U.K. Justice Secretary Jack Straw to testify. The Senate intends to explore Scotland's decision last summer to release former Libyan security agent Abdel Baset al-Megrahi. Scotland, the U.K. and BP have all said the oil company played no part in the decision to release Megrahi.

COMPANY NEWS

Profits of major U.S. oil companies are expected to climb on improved refining margins, which benefited from a stronger demand for fuel in the second quarter. Exxon Mobil Corp. (XOM) , the world's largest publicly traded oil company, reports Thursday. Some investors worry that its $25 billion purchase of U.S. natural gas producer XTO Energy Inc. has diluted earnings per share and return on capital employed. ConocoPhillips (COP) reports Wednesday and Chevron Corp. (CVX) is due next Friday.

BP PLC (BP) will publish its second-quarter results Tuesday, and analysts expect the oil giant to address many of their concerns about how much the spill in the Gulf of Mexico will cost BP and how it will pay for it. Press reports have suggested the company would release preliminary results from its investigation into the causes of the explosion aboard the Deepwater Horizon drilling rig that triggered the three-month-long oil spill, but a spokesman said BP will not do so. The company expects its investigation to conclude in September or October.

Aerospace giant Boeing Co. (BA) , which reports Tuesday, is expected to post worse results than a year earlier as investors look for an update on the 787 Dreamliner jet, which Boeing this month said could see its first delivery delayed to next year on continued testing supply-chain issues.

Also reporting are defense contractors Lockheed Martin Corp. (LMT) on Tuesday, General Dynamics Corp. (GD) on Wednesday, and Raytheon Co. (RTN) and Northrop Grumman Co. (NOC), both Thursday. They all face challenges amid slowing U.S. defense spending.

Life insurers Aflac Inc. (AFL) and MetLife Inc. (MET) , which report results Tuesday and Thursday, respectively, both are expected to show improved earnings. Aflac is expected to discuss its exposure to European sovereign debt while MetLife, the largest U.S. life insurer, could detail its agreement to buy Alico, an international insurance operation, from American International Group Inc. (AIG) for $15.5 billion.

Also reporting are health insurers WellPoint Inc. (WLP) and Aetna Inc. (AET) , Wednesday morning and Tuesday night, respectively. They may discuss effects of the health-care reform legislation passed this spring.

Stock exchange Nasdaq OMX Group Inc. (NDAQ) , which reports Tuesday, is seen reporting slightly better earnings on flat revenue, while CME Group Inc. (CME) , which reports Thursday, is expected to show significantly better results. The world's biggest futures exchange operator has already said the second quarter was its second-busiest ever in terms of daily trading activity thanks to an all-time record in May, likely helped by the historic May 6 crash and resulting market volatility.

Energy Concerns

BP's [BP )

The BP oil spill in the Mocando field off Louisiana affected just about all energy stocks. There are other problems.

Biggest is price. Crude is flat on the year; every time it has topped $80 a barrel, it has run into serious resistance. Natural-gas prices are down 18% from a year ago.

Demand in the United States for motor fuels and natural gas is a question. The slow U.S. recovery has kept drivers at home. Industrial users haven't needed lots of natural gas.

Nonetheless, the stocks have been moving higher this month as investors sensed the spill would be capped and the economy might not be dead after all.

And analysts see nice gains this quarter from BP on Tuesday, ConocoPhillips on Wednesday, Royal Dutch Shell and Exxon on Thursday and Chevron and Total (TOT), the French oil company, on Friday.

Exxon's revenue is expected to jump 32% to $98.4 billion -- larger than the gross domestic product of Vietnam and smaller than Kazakhstan's.

INDICATORS AND MARKET CONDITIONS

Presidential Cycles

Here is some very interesting information with the correlation between elections and the effects on the market place!

We're a few months away from the midterm elections. In the last couple of years there have been some major pieces of legislation passed (TARP, health care reform, financial regulation) and there are a few more things some Democrats would like to take care of (energy/climate change legislation). Will legislation before the midterms be good for the market? I'm not one to get into a political debate, so I'll leave that for others to discuss. But I do have the numbers on how the market has performed depending on which party holds the presidency and which year it is of the presidential cycle.

Dow Returns by Party: In 1949, Harry Truman became the first president to be inaugurated to his first term on Jan. 20 (prior to Franklin Roosevelt's third term, presidents were inaugurated in March). So I went back to 1949 and looked at how the Dow Jones Industrial Average performed depending on whether a Democrat or Republican held office. The table below shows that the Dow has performed better with a Democrat in office as opposed to a Republican. The second-half returns would be most relevant to now. With a Democrat in office, the Dow has an average return of about 7% for the last six months of the year. Also, there has been a positive return an impressive 84% of the time.

Dow since 1948



Second Half of Year Broken Down: The table below breaks down the Dow performance for the second half of the year. The second year of a presidential cycle is the year of the midterm elections. You can see that it happens to be the worst time for the Dow when a Democrat is in office. During that half-year the Dow averages a 4.28% return and is positive 67% of the time. The Republicans on the other hand have seen the Dow perform well during the midterm year when they hold the presidency. During those years the market is still positive only 67% of the time, but the market returns an average of 7.26%.

dow-2nd half



Finally, below is a table showing you the second half of the individual midterm election years where a Democrat was president. The first half of this year was not a good one for the Dow, but that has been typical according to the table below. Five of the seven results in the table below are negative, averaging a loss of 3.88%. The second half of the year has usually been pretty bullish, averaging a return of 4.28%. That is no thanks to the third quarter, though. We see in the table that the third quarter has a very slightly negative average return. Four of the six results are pretty good, but there are two returns that are negative by double digits.

dow performance



***Further evidence of market conditions can be seen in representations of charts below.

Tracking of SPY, DIA, IWM and QQQQ

This could end up being a pivotal week for the markets as the general indexes shook off last week’s weakness and responded with a strong push higher. While the overall trend is still very much in question, the price action this week introduces the potential for the formation of an important low. Last week the markets failed at an important resistance level and appeared to be headed down to test their July lows. However, the markets only retraced a portion of the prior decline and could be forming an important higher low here. If the markets can climb past their June highs they will be setting a higher high as well.

The chart for the S&P 500, as represented by the S&P 500 SPDRS (NYSE:SPY) ETF, is illustrating this trend quite clearly. Notice how SPY broke to a new low early in July, threatening a complete breakdown. While it bounced sharply higher from this weakness, many traders expected the inevitable failure once SPY reached its 200-day moving average. SPY did indeed fail near this level, and while it looked like SPY would head back to the July lows, buyers stepped in near its 20-day moving average and SPY ended up clearing its July highs soon thereafter. This is very constructive price action and while SPY remains under its 200-day moving average, the recent strength hints at a possible bottom being formed.

spy-july23,2010



The Diamonds Trust, Series 1 (NYSE:DIA) ETF, which tracks the Dow Jones Industrial Average, tracked a very similar path to SPY, and is showing a little more relative strength. In the process of this week's bounce, DIA was able to climb back above its 200-day moving average and also cleared a trendline touching some recent highs. The more important resistance level to watch is the June high near $106, but this is constructive price action and could signal an end to the downtrend.

dia-july23,2010



The Nasdaq, as represented by the Powershares QQQ ETF (Nasdaq:QQQQ), has been underperforming recently but also managed to reclaim its 200-day moving average and clear its July high. Of course, much like the other indexes, the more important level to watch in the near future is the June high. Clearing this level would mean a higher high, effectively ending the downtrend. This doesn’t mean that the markets will suddenly emerge into a new uptrend, but will indicate that the pattern of lower lows and lower highs has been officially broken.

qqqq-july23,2010



The Russell 2000, as represented by the iShares Russell 2000 Index (NYSE:IWM), also climbed back above its 50- and 200-day moving averages this week. Much like DIA, it also broke out of a channel it had been following and cleared its July highs. If the market picture is truly improving, then leadership should be coming from the small caps and technology stocks.

iwm-july23,2010



Implications

In last week's Market Outlook we mentioned that there was a possibility of the markets forming a higher low in this area. This week's price action certainly increases the odds of this scenario. However, for this action to truly mark an end to the correction that began in April, the markets will need to set a higher high and clear their June highs. This would halt the pattern of lower lows and lower highs. While it wouldn’t signal an all-clear and a resumption of the preceding uptrend, it would be a sign that the environment is improving. This week’s lows are also an important level to watch, as a drop below this level will negate the bullish price action and more than likely predict a drop to new lows.

The markets have done a great job of frustrating participants over the past several weeks, so it’s not out of the realm of possibility that they could turn the tables on everyone and break down. But, although this is very similar to the price action we saw in June, this week’s price action shouldn’t be dismissed, as it does introduce the possibility of an end to the recent correction. The levels to watch are pretty clear and there were some decent have started to appear for individual stocks. Earnings should continue to dominate the news next week and possibly set the tone for the next move.

Tracking of Stocks That Are Ready for a Breakout

While the markets have certainly been weak over the past few months, some stocks have held up quite well, refusing to give up much ground. But despite this, the overall environment has not been conducive to holding stocks for more than a few days on the long side. Because the odds for a successful long trade increase significantly when it is aligned with the general markets, even stocks with great looking charts have had a high failure rate. However, with the market reversal, it's feasible that the markets could surprise many with a continued rally. If the markets do move higher from here, the stocks that have shown strength are more likely to be at the forefront of the rally.

Power-One (Nasdaq:PWER) is a good example of a stock that has steadily been building a base in the face of declining markets. In fact, PWER appears to have broken out of its base a couple of weeks ago and, after pausing near its breakout area, it's ready to push higher. The recent low near $8.40 would be the first level to watch for aggressive traders looking to participate, but longer term traders should be watching the $8 area, which was prior resistance and the low $6s, which contained all the selling in the past few months.

pwer



Dollar Thrifty Automotive Group (NYSE:DTG) is another possible stock to watch in case the markets can continue to push higher. DTG had been in a very strong rally from February through May, more than doubling in price. It has been consolidating for the past two months and while it has pulled back over 10 points from its high, it has held above a prior breakaway gap near $40 and the price action has been very tame. Recently, DTG cleared the channel it was following as it corrected, and is now basing near its 50-day moving average. If DTG can clear this small price cluster, it could head back up to test its May highs.

dtg



Sprint Nextel Corporation (NYSE:S) is another stock that may be ready to move higher if the markets cooperate. Sprint cleared an important level near $4.30 in May and continued to surge as it set a higher high. It has been correcting in a channel that resembles a flag back down to its approximate breakout area. It recently moved out of the flag and is trading in a tight range near its 50-day moving average in a similar fashion to DTG. If it can clear this little range, it could attempt to rally through its prior high near $5.25.

s



PAREXEL International Corporation (Nasdaq:PRXL) is a stock that might be ready for a breakout attempt, but is still under a resistance level. While it has had some sharp swings recently, in the grand scheme of things PRXL has been in a consolidation since April. It held near $20 on a couple of pullbacks and is testing an important resistance level here near $24. This is where the June rally attempt failed and also coincides with a trendline that has marked the recent highs. If PRXL can clear this level, it could set the stage for a push to new highs. However, a failure here is still a real possibility.

prxl



Implications

While last week’s price action was certainly promising, traders need to be cognizant of the fact that the markets are still struggling with key moving averages and have yet to clear any major resistance levels. The charts above are showing promise, but much will depend on the markets' cooperation. The potential for a market rally to continue does exist, but until now, all rallies have been rebuffed after a few days. As a trader, it is important to outline the setup along with the key levels to watch. These stocks have clear levels defined and it’s simply a matter of letting the markets decide whether they will help these stocks or not.

Conclusion

Wall Street enters this week on the cusp of a breakout in U.S. stocks, but it will need another spate of convincing earnings reports to feed the rally that sprouted at the end of last week.

The markets endured malaise with poor economic data and downbeat testimony from Federal Reserve Chairman Ben Bernanke on Wednesday but turned decisively, after a number of strong results pointed to better times ahead.

This week brings more results from bellwethers like Chevron (CVX), DuPont (DD) and Boeing (BA). The trick will be turning the whipsaw action into accumulated gains -- and hoped-for improvements in volume -- that would signal an upturn in sentiment.

"There's a constant struggle between the bulls and the bears when in fact the answer is in the middle ground. This market is more like a turkey and not a bull or a bear," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Fund Management in Menomonee Falls, Wisconsin.

Investors have been forced to readjust their expectations for the economy, with data showing the pace of the recovery has gone from a sprint to a crawl.

It has also prompted a divisive argument over the likelihood of an encore recession. But if worries over a double dip are starting to be washed out of the market, an unexpected positive could fuel the market higher.

I think Federal Reserve Chairman Ben Bernanke summed it up on Wednesday when he called the economic outlook "unusually uncertain." On Tuesday we rallied on "weak" earnings, and on Wednesday we sold off on big volume after "good" earnings. Uncertainty certainly is commonplace. Nonetheless, earnings for the most part have come in better than expected and the market is showing some signs of life.

There are probably more reasons to be very concerned out there than reasons to be bullish. We have worries over some poor, high-profile bank earning reactions, weak housing numbers, jobs, European debt, future dividend and capital gains tax increases, and lastly record lows for the two-year yields - suggesting the bond market isn't buying into the economic recovery. Nonetheless, if everyone else is worried about these same things – you have to wonder how much of this bad news is already baked in.

Jefferies managing director Art Hogan thinks earnings news will win out in the next couple of sessions even though revenue growth is still a disappointment for some companies, such as IBM (IBM) in the past week.

"Although it's a robust economic calendar, I don't think there's enough to topple the apple cart so I really think the earnings will take over the news and the market will be fine," he said.

Barclays Capital's Barry Knapp, said revenue growth could pick up to about 12 to 13 percent for the S&P 500 companies this quarter, better than the expected 10 percent level. It's currently at 11 percent.

"Only about 8 percent of the energy companies have reported, and that could get the revenue growth up...12 to 13 percent S&P revenue growth is not consistent with a double dip," he said. Analysts had also expected profit growth of 27 percent, but it is running well ahead of that pace so far.

The broad S&P 500 also finds itself standing on top of a key resistance level that could turn into a floor for the market. The index closed at 1,102.66, just above the psychologically important 1,100 level for the first time in a month. The level has been a hard one to hold and could buoy the market if the move is ultimately a decisive one.

With the S&P 500 edging out of official correction territory, trading down about 9 percent from this year's April high, analysts appear to have reconciled themselves to a slower recovery than they had hoped for. A correction is generally defined as a 10 percent decline from the top.

"All the indicators still indicate growth, we're just not growing as quickly as we were when we were coming off the bottom, and that makes total logical sense," said Michael O'Rourke, chief market strategist at BTIG LLC in New York. O'Rourke added he believes the selloff has run its course, and the early July low will prove to be the low for the year.

Analysts will be hoping to see more earnings season cheer from industrials companies this week after a slew of manufacturers last week topped expectations and raised full-year profit forecasts.

Options

Options traders are betting on positive momentum for Boeing and DuPont following their earnings next week, said Andrea Kramer, analyst at Schaeffer's Investment Research in Cincinnati, Ohio.

Boeing's 10-day call/put ratio shows investors have bought calls over puts in the open market at a faster clip only 6 percent of the time during the past year. In DuPont, near-term traders have been more optimistically aligned toward the stock only 1 percent of the time during the past year, according to Kramer.

The options market also points to wide overall price movements this week as options volume continues to be low, said Steve Claussen, chief investment strategist at online brokerage OptionHouse.com in Chicago.

As of Thursday's close, 13.8 million options traded overall versus 16.6 million in mid-June.

"Summer rallies start because of low volume, since not a lot of people want to get in the way of selling anything, and then it suddenly builds, as people say, it starts to chase performance," Claussen said.



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