Wall Street enters next 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 this 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.
Next week brings more results from bellwethers like Chevron , DuPont
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.
STANDING ON 1,100
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 next week after a slew of manufacturers this week topped expectations and raised full-year profit forecasts.
General Electric Co added positive sentiment to the sector on Friday by raising its dividend by 20 percent, illustrating the conglomerate's confidence it has put the worst of the recession behind it.
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 next 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.
ECONOMY IS WILD CARD
But the economy will remain the wild card, with the potential to pour cold water on investor enthusiasm and a round of top-tier economic data will be looked at to determine the strength of the economic recovery.
The Federal Reserve's Beige book of economic conditions will also be scrutinized for any illumination of Bernanke's comment that the outlook is unusually uncertain.
Analysts will also digest the results of the European stress tests on banks. But if Friday's session is an indication, market movement will likely be muted.
New home sales will kick off the week, with data expected to show a rise to 320,000 units in June, according to a Reuters poll of analysts. More housing data on Tuesday includes the Case-Shiller home price index, which is expected to rise 4 percent year-over-year in May.
Also on Tuesday, consumer confidence is expected to come in at 51 for July, a slight dip from the month before. Durable goods orders on Wednesday are forecast to rise 1 percent in June.
Weekly initial jobless gains on Thursday are expected to ease to 460,000 from 464,000 the week before. Investors will get another look at the consumer on Friday with the final July reading of consumer sentiment, which is forecast to rise from the preliminary July reading.
Lastly will be the first reading for second-quarter gross domestic product. Investors are expecting the economy to grow by 2.5 percent, compared to 2.7 in the first quarter.
(Reporting by Leah Schnurr; Editing by Kenneth Barry)