Riding Boldly Into Earnings Season—But It Could Get Rough

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The S&P 500 is close to setting a new high-water mark, if positive momentum continues Friday.

The S&P rose 11 points Thursday, finishing at 1,472, its highest close since December 2007, but below the intraday high it set in September of 1,474.51. The Dow ended 80 points higher at 13,471, and the Nasdaq jumped 15 to 3,121. Stronger trade numbers from China and encouraging comments from European Central Bank President Mario Draghi about Europe's economy helped spark Thursday's quiet, but important move higher.

(Read more: Stocks End Near Highs, S&P Crosses 1,470; Facebook Gains 2%)

"We're getting pretty close to our September peak. It's do-or-die time," said Gina Martin Adams, institutional equities strategist at Wells Fargo Securities.

"I think it's going to be really tough to get through this earnings season without fits or starts. There's so much riding on this earnings season because of expectations for growth going into 2013. I think it could be pretty dicey but it's not so much what they did in the fourth quarter but can they confirm that expectations set a better tone?"

Scott Redler of T3Live.com said a breakthrough and close above that September high could help keep stocks moving higher.

"The last two days established the range to the upside. A close above that 1,474 level would most likely induce another round of short-covering, and that will probably take us to the 1,500 level, which is more of a psychological level for traders to watch," said Redler, who follows the market's short-term technicals. He said the next real level of resistance would be 1,520.

(Read more: Bartiromo: Earnings Season May Bring Disappointment)

"All in all, there's been a lot of great rotation, sector participation. An elevator up is always hard, but an escalator up? People complain about the lack of speed, but it makes it easier for people to get involved" in the rally, he said.

There have been just a few earnings reports so far and American Express surprised with an early release Thursday afternoon, when it basically "kitchen-sinked" the quarter. The card company took multiple charges and laid off 5,400 in a restructuring but it stressed that card-member volumes and revenue growth was strong in the fourth quarter despite an uneven economy. Net income for the quarter was $637 million, or 56 cents per share, but was $1.2 billion, or $1.09 per share, before the charges, flat with last year.

What to Watch

Wells Fargo is the first major bank to report, when it releases earnings ahead of Friday's bell. Wells Fargo shares were up 2 percent at $35.40 Thursday, as financial stocks gained 1.3 percent ahead of the earnings period. Other major banks, like JPMorgan, Bank of America and Citigroup report next week.

(Read more: Bank Earnings: What to Watch for)

Infosys also reports earnings Friday, and Best Buy is expected to release holiday sales data.

Data includes international trade and import/export prices at 8:30 a.m. ET. At 9:30 a.m., Philadelphia Fed President Charles Plosser speaks.

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