Full Speed Ahead: Stocks May Top 2012 Highs

Full Speed Ahead: Stocks May Top 2012 Highs

Technicians see an uptrend in place that could easily take stocks back to their 2012 highs.

Stocks in the past two days have been lifted by better-than-expected U.S. economic reports and earnings news, after last week's sell off.

Wednesday is another big day for earnings reports , with early morning releases expected from Bank of America, Pepsico, BlackRock, Bank of NY Mellon, US Bancorp, AMR, Knight Capital and Halliburton . There are housing starts at 8:30 a.m. After the bell earnings are expected from American Express, eBay and Stryker . (Read more: Fourth-Quarter Earnings Warnings Start Rolling In )

"There's no real resistance level we've broken, but if you take a step back and think what we've done since June, we've been this this big uptrend, " said MacNeil Curry, technical strategist with Bank of America Merrill Lynch. The market has been correcting in the past several weeks but stayed above the April high of 1422.

"The way this thing has traded since about mid-September, it's done no damage to the uptrend that's bee intact since June. It's just been consolidation. It indicates we're going to see a resolution to the bull trend that's been in place since June, " Curry said. He said there is a similar move off across other risk markets. Euro Stoxx 50, Europe's blue chip index, for instance closed up 2.7 percent Tuesday, to finish at 2547. The index broke above 2534, completing a two-week double bottom.

"What I've been looking at today is the breakout in the Euro Stoxx, and how well they've been doing. It looks like we're about to resume the longer bull trend there after a month long correction, " he said.

Some traders believe stocks put in a low last Friday, when the S&P fell to 1425, just below the 50-day moving average, said T3Live.com's Scott Redler. "Now shorts are pretty much worried about whether we take out the 1474 (the 2012) high. I think the next couple of days will be inside days ... but there's no reason that in the next weeks or months, we don't take out the Sept. 14 high of 1474, " he said.

The S&P 500 Tuesday finished at 1454, up 14, while the Dow ended at 13, 551, up 127. The Dow is on track to take out 13, 661, the 2012 high set Oct. 5. The Dow is now 4.3 percent away from its all-time high of 14, 164, reached Oct. 9, 2007. The S&P is 7 percent away from its all-time high of 1565, reached the same day.

The wild card for markets is the November election , and what policy actions might come of it. Traders are worried about the fiscal cliff, which is the expiration of Bush-era tax cuts and spending cuts that will take place if the lame duck Congress does not act. Tuesday night's presidential debate was seen as pivotal, after President Barack Obama gave up his lead to former Mass. Gov. Mitt Romney following the first debate. (Read more: Why Does Wall Street Dislike Obama So Much?)

"Earnings have been enough to keep the market within the recent trend, " said Redler. "We've been in a trend since the June 4 lows where the dips have been buyable. With earnings coming out, it seems expectations have been lowered enough for companies to come out and meet or beat."

A number of blue chips, like Johnson and Johnson beat expectations Tuesday, but IBM missed revenue forecasts and its stock fell after the bell. It could weigh on the Dow Wednesday morning.

"Tomorrow will probably open up a little soft, considering we had a 25-point rally in two days, " Redler said. (Read more: Earnings Look Better So Far but Market May Not Care )

The rally has confounded some analysts, who expected a bigger correction. "It has been a market with continued question marks, but we'll take the rally. We'll take the rally defensively, " said Louise Yamada, managing director with Louise Yamada Technical Research Advisors.

"You read about traders that aren't trading. So who's making the volume? Is it the plunge protection team? The government's manipulating it? We don't have any answers to that, " said Yamada. "We do have enough confirmation to think it could continue and we watch. You don't have as many stocks above the 200-day moving average as you did two weeks ago, but that doesn't mean it doesn't' improve. We could go higher."

She said one positive is there hasn't been an explosion of new lows. "Some of the depressed stocks like the coals, basic materials are perhaps beginning to bottom though I think it's early, " she said. "Maybe that's saying something. The interest is moving from taking some profits in things that are extended to at least experimenting with some of these depressed stocks."

Yamada said the next test for the market is those 2007 highs. "We're constructive with defensive postures, " she said. "It could go sideways, and we'll see if its happy with the election outcome."

Maxim Group technical analyst Paul LaRosa said he's cautiously optimistic the market will go higher, but he's also a little perplexed.

"It doesn't make any sense, but sometimes the market doesn't make sense and you have to listen to what the market's telling you and position yourself that way. If you did you would have been accumulating stocks all summer, and you'd be in good shape now. The questions is what do you do now, " he said.

Follow Patti Domm on Twitter: @pattidommQuestions? Comments? Email us at marketinsider@cnbc.com