With one-third of the Dow components and crowd favorite, Apple, reporting results this week, U.S. stocks are setting the stage for another week of gains.
After the steepest two-week rally in more than two years, the S&P 500 is at the top end of its range for the past two months.
The benchmark closed Friday above 1,220 for the first time since early August, and bets against the recent rally could start to pile up.
But Monday earnings and guidance from IBM, followed by results from Apple, Coca-Cola and Intel on Tuesday could give shorts a reason to put their guns down. The S&P could be on its way to a third straight winning week — a streak not seen since February.
"There are some fundamental catalysts which could play right into the momentum," said Richard Ross, global technical strategist for Auerbach Grayson in New York.
He said the S&P 500 "has potential to take out that well defined resistance (at 1,220) and it would be a fast move up to the next level, between 1,265 and 1,275."
The sharp turnaround in stocks from a 2011 low hit Oct. 4 took many by surprise, and buying has spurred more buying as traders and money managers try to catch up with the benchmark's performance.
The pattern repeated itself Friday, with the three major indexes closing at or near session highs.
For last week, the Dow Jones industrial average gained 4.9 percent, the S&P 500 added 6 percent, and the Nasdaq Composite rose 7.6 percent.
Ten of the 30 Dow components, including Microsoft , American Express and Johnson & Johnson , are scheduled to report quarterly results this week.
Big financial names expected to report include Citigroup , Goldman Sachs and Wells Fargo, which follow Thursday's earnings disappointment from JPMorgan Chase & Co that battered the sector.
Reported and estimated earnings growth for the current earnings season is seen at 12.4 percent for all S&P 500 companies, according to Thomson Reuters data. That is down from this year's estimate peak of 17 percent in July.
But companies like Apple and IBM, which hit lifetime closing highs on Friday, are expected to trounce expectations. And positive surprises could play into the buying momentum.
"Price will start to discount even more optimism," said Wasif Latif, vice president of equity investments at the San Antonio, Texas-based USAA Investment Management, which manages about $45 billion in mutual funds.
"Growth companies, given the high expectations, need to have a 'wow' factor when it comes to reporting and beating earnings," he said, adding it was certainly possible for these two names to rise further.
The VIX volatility gauge has declined in the past weeks, closing on Friday at its lowest level since Aug. 3. That could translate into less uncertainty and more of the buying frenzy that drove the S&P 500 to its largest two-week percentage advance since mid 2009.
Softening economic numbers in the United States and abroad, as well as a grinding expansion of the euro zone sovereign debt crisis, stymied investors and drove stocks and commodity prices to heavy losses in the third quarter.
But despite Greece's slow crawl toward a default and rising borrowing costs in Spain and Italy, the perception of efficient action in Europe gave investors the confidence to return to equities — or at least cover their short bets.
Economic numbers, expected at a certain point in the summer to show the U.S. economy was sliding back into recession, have generally come in above those lowered estimates.
USAA's Latif said that even if current levels are subdued and expectations are lowered "it's definitely very encouraging" to have data land better than expected.
Among the main economic indicators due this week are industrial production and capacity utilization on Monday; producer and consumer inflation on Tuesday and Wednesday, respectively; and weekly jobless claims on Thursday. The week closes with the final reading of the Reuters/University of Michigan consumer sentiment index.