Investors are in a buy the dip mood and they bought the market's two-day, Monday/Tuesday dip. The rebound in the S&P 500 pushed the index to a new five-year closing high. The fiscal cliff is behind us and the debt-ceiling battle is still a few weeks away. That allowed market participants to ignore Washington and focus on Wall Street. Yet it proved to be a relatively quiet week as we waited for the earnings parade to pick up steam. By Friday's closing bell the S&P 500 eked out a +0.3% gain for the week. The NASDAQ was up +0.7% and the small cap Russell 2000 index inched higher with a +0.1% weekly gain.

The Q4 earnings season has begun. Dow-component Alcoa (AA) kicked off the season last Tuesday night. AA's report was generally positive and helped set an early bullish tone. Wells Fargo (WFC) reported on Friday and also beat expectations, which is a good sign for the influential financial sector. Thus far only 27 companies in the S&P 500 have reported. 67% of the 27 have beat estimates. That's about normal. In our slow-growth economy the small batch of Q4 earnings data we have seen is showing average revenue growth of +1% and earnings growth of +4%. The next two weeks are going to provide a flood of earnings reports, which will provide a much better look at how corporate America is doing.

Major Indices:

Most of the stock market headlines on Thursday and Friday were pointing out that the S&P 500 was at a new five-year high. The year 2012 intraday high was 1474.51, back on September 14th, but the closing high was only 1465. That means the S&P 500, now at 1472, is at a new five-year closing high. More importantly the S&P 500 looks poised to breakout past the 1475 level. If that occurs it could see a quick sprint toward the 1500 level.

I mentioned last week that the 1500 level will likely be round-number, psychological resistance. It can also act like a magnet. Whether or not the index can get there will most likely depend on how good the next week of corporate earnings results are.

Last week the low was 1451. The 1450 level is short-term support. Below that there is likely support at 1440, 1420 and 1400.

chart of the S&P 500 index:

The NASDAQ composite outperformed the S&P 500 with a +0.7% gain for the week. The index bounced off the 3075 area on Tuesday and it rebounded again on Thursday near the 3100 level. If this trend continues we should see the NASDAQ challenging the 3150 level soon. If the rally really picks up speed then resistance near 3200 is the area to watch. The 2012 intraday high is in the 3195 area. I would expect the NASDAQ to pause or pullback on the next test of the 3200 region.

chart of the NASDAQ Composite index:

The Russell 2000 index produced big gains the first week of January. This past week saw momentum stall but it still eked out a gain. That means the $RUT also hit new all-time, record highs. The bullish breakout past resistance near 870 is very positive but on a short-term basis you could easily argue the $RUT is overbought and due for a dip. Any dip will depend on how investors choose to interpret the next wave of earnings reports.

The 900 level is probably round-number, psychological resistance. The 870-860 area is potential support. On the weekly chart below you can see that the $RUT is testing a trend line of resistance.

chart of the Russell 2000 index

Last week I mentioned how low the volatility index (VIX) had fallen. It has continued to fall and is now at new five-year lows. This is a sign of investor complacency. Essentially fear of a market sell-off is very low. If you are a contrarian then this is a bearish signal. However, just as stocks and the market can continue to grow more and more overbought the VIX can stay low for a while. Eventually there will be a re-balancing of market expectations so this is something to be aware of.

Economic Data

The pace of economic data picks up this week. We'll see two fed surveys. The New York and Philly Fed will release their monthly business activity surveys. The PPI and CPI will unveil the current state of inflation at the wholesale and consumer levels, respectively. The Beige Book will offer a look at all twelve Federal Reserve regions. Another report to watch will be the Chinese GDP numbers on Thursday. If we see a better than expected report from China it could definitely boost the global equity markets.

Economic and Event Calendar

- Monday, January 14 -
Eurozone industrial production

- Tuesday, January 15 -
Retail sales for December
Producer Price Index (PPI)
New York State Empire Manufacturing Survey

- Wednesday, January 16 -
Consumer Price Index (CPI)
Federal Reserve Beige Book
Eurozone CPI

- Thursday, January 17 -
Weekly Initial Jobless Claims
housing starts and building permits
Philadelphia Federal Reserve Survey
Chinese GDP data

- Friday, January 18 -
University of Michigan Consumer Sentiment Survey

Additional Events to be aware of:

Jan 21st - U.S. markets closed for Martin Luther King Day
Jan 21st - EU finance minister meeting

The Week Ahead:

Looking ahead the market will focus on earnings results. The political battle in Washington over the U.S. debt ceiling will be a major event but that is still three or four weeks away. It seems that investors are ignoring what will be another ugly battle between democrats and republicans to focus on Q4 earnings results instead.

Thus far the tone of earnings has been positive but we've only seen a few reports so far. These next few weeks will deliver hundreds and hundreds of earnings report. It will all come down to guidance. If corporate America is too cautious with their guidance or just flat out issues bearish guidance then stocks will likely reverse lower.

Technically the market's trend is up. The S&P 500 is at a new five-year high. The small cap Russell 2000 is at a new all-time high. The German DAX is nearing a new all-time high. The Dow Jones transportation average is nearing an all-time high. Currently momentum favors the bulls.

The S&P 500 still has about a 100 points to go before it reaches its all-time highs set in 2007 (near 1570). As we near that level you might hear more warnings cries of a triple top but we'll worry about that when/if the S&P 500 gets there.