The S&P 500 posted another loss for the week but it was not a very convincing follow through after the bearish reversal two weeks ago. Dow-component Alcoa (AA) kicked off earnings season last Monday for a week that saw reports from JPM, GOOG, and BAC. Thus far investors have been in a sell-the-news sort of mood. Yet the market's major indices are holding up reasonably well. There was a spike down on Thursday morning, thanks in part to news out of Japan. On the international scale of nuclear disasters the Japanese government upgraded their problems with the Fukushima Daiichi nuclear plant to 7, the highest rating on the scale. They claim that the radiation emitted from the plant thus far is only about 10% of what was released at Russia's Chernobyl incident.

On the bright side the economic picture in the U.S. continues to improve. Economic data has continued to buoy the market. The New York Empire Manufacturing survey was better than expected. The employment component of this survey surged to their highest levels since May 2004. Industrial production and factory output are improving. Consumer sentiment managed a bounce. The CPI numbers failed to show any drastic increases for inflation (thus far). Yet inflation remains a worry. Inflation fears and a falling U.S. dollar have fueled new all-time highs for gold and silver. Meanwhile crude oil has rebounded from the sharp sell-off early in the week.

Last week I warned readers that the 1320 and 1300 levels were the key levels to watch on the S&P 500. The midweek dip hit 1302 and the S&P 500 pretty much closed on the 1320 level Friday. The pull back has produced a 38.2% Fibonacci retracement of the bounce from the March lows. Bulls might see this as an entry point. As long as the index holds above the 1300 level we might be okay. If the S&P 500 breaks down under 1300 there might be support at the 100-dma but that could be wishful thinking. A continued move lower from here will strengthen fears that the market is forming a bearish double top pattern.

Daily chart of the S&P 500 index:

The tech-heavy NASDAQ spent this past week hovering on either side of support near 2750 and its 50-dma. The index remains stuck between overhead resistance near 2800 and likely support near 2700 (and its 100-dma). There is a NASDAQ-100 rebalancing soon but big picture it should even out. The biggest change will be Apple Inc. (AAPL) which will see its weighting in the NDX will fall from 20% to 12%. You can read about the rebalance here. If the current sell-the-news mood continues then we'll likely see the NASDAQ retesting support near 2700 soon. Everything will depend on investors reaction to the earnings data and corporate guidance. Further declines here will also fuel fears of a bearish double top of the NASDAQ.

Daily chart of the NASDAQ Composite index:

Last week I warned readers to beware a close under 425 for the SOX semiconductor index. The SOX traded under 425 a number of times but never closed under this level. That doesn't mean it's not looking vulnerable here. The SOX has fallen under its 100-dma and this could prove to be new technical resistance. I am concerned that a new failed rally in the 440 area, near the 50-dma, might herald a drop back toward its March lows. This is a weak sector right now as investors worry about how the Japan disaster might affect the industry.

Daily chart of the SOX semiconductor index:

The small cap Russell 2000 index ($RUT) remains one of the most encouraging indices. The action in the first week of April still looks like a potential bearish reversal but there wasn't much follow through. Traders were buying the dip near 820 and technical support at the 50-dma. This also happens to be a 50% retracement of the rally off its March lows. The bounce on Thursday and Friday looks like a new bullish entry point. If it wasn't earnings season right now I'd be even more optimistic on the RUT.

Daily chart of the IWM Russell 2000 ETF:

I am also encouraged by the action in the transportation section. The reversal lower in crude oil has petered out and oil is already bouncing higher again. Yet the transports have found support near 5200 and begun to rally. If the transports can rally in the face of rising oil, that's pretty optimistic. Granted, if oil starts hitting new relative highs again we may want to look for the transports to lose power and reverse. On a short-term basis look like they want to rally.

chart of the Dow Jones Transportation Index:

Bears can argue that we can't have a sustained market rally without the financials and they would be right. The banking sector is a huge chunk of the market. Reaction to JPM's and BAC's earnings last week was not positive. Take a moment to look at charts for the BIX banking index, BKX banking index, and the XLF financial ETF. These don't exactly inspire confidence.

This week the economic calendar is a little light. The Philly Fed survey on Thursday (April 21st) is probably the biggest report. There will be a lot of talk about housing with the existing home sales numbers, and housing starts. These will all take a back seat to corporate earnings. There will be dozens and dozens of reports.

This week could prove to be pivotal for the U.S. stock market. I have been warning readers that strong earnings results have already been baked into the market. Businesses need to beat the street and/or offer healthy guidance going forward. Otherwise there will be a very strong urge to lock in profits with the S&P 500 still up +5% for the year.

Another issue that will tempt investors to sell the earnings news is the "sell in May and go away" crowd. Historically stocks don't perform as well from May through October.

I suspect that the next two weeks will either push the markets up through resistance to hit new highs for the year or it will spark a sell-off and the S&P 500 could be testing support near 1250 before the month is over.

The LEAPStrader newsletter tries to focus on trades with six, nine, twelve-month or longer time horizons. I would not be in a rush to launch new positions when stocks could be facing a lot of volatility over the next couple of weeks.

- James