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Homemarket insiderWhy bulls see a possible S&P breakout this week

Why bulls see a possible S&P breakout this week

As the Fed meets and earnings news rains down on the stock market, some bulls are betting the S&P 500 could break out to the upside.

The stock market defied expectations that it would have a tough time in the past week, thanks to benign earnings news and China lowering its reserve ratio for banks at the start of the week. U.S. stocks surged, with the S&P closing up 1.8 percent for the week at 2117, a new closing high and a hair under its all-time intraday high of 2,120.

The Fed meets Tuesday and Wednesday, and there are some important economic reports like first quarter GDP Wednesday and Thursday's personal consumption expenditures data that includes an inflation measure. There are also dozens of earnings starting with Apple Monday, and including the biggest names in the oil patch, like BP, ExxonMobil and Chevron later in the week.

Traders work on the floor of the New York Stock Exchange.Brendan McDermid | Reuters

"To me, the real story next week is do we get a breakout in the S&P," said Art Hogan, chief market strategist at Wunderlich Securities. "There's enough people betting against it that a close above it would send some people scurrying to cover…. Earnings season has not been the disaster that was expected. I think energy is going to be a place with the most upside surprises." S&P energy sector earnings are expected to be down more than 60 percent.

The big event for the week is the Fed's two-day meeting, but Fed watchers are not really looking for any new developments and it is likely to continue to send a relatively dovish signal to the markets. "The only thing the Fed can do that would really change the market's concept of monetary policy right now is to clearly put June back on the table, and I don't think that's in the offing," said Hogan.

The recent string of weak data and first-quarter growth expected at just about 1 percent have convinced many in the markets that the Fed will not move to raise interest rates until September at the earliest.

Read MoreWall Street cuts growth outlook for Q1 and beyond

Jim Paulsen, chief investment strategist at Wells Capital Management, said technicals could take over in the coming week, since the market has already gotten a good sense of the earnings season. If the S&P does start to take off, it could take aim at 2,200 before a pullback.

"Let's just say, it made a nice run and broke through 2,150 promptly. That would be another significant advance. That would capture some attention," he said. Paulsen said oil, up about 3 percent in the past week, and euro/dollar may also be looking to break recent levels.

Paul Richards, UBS head of fx rates and credit distribution for the Americas, said he expects a favorable resolution for Greek's debt struggles, and the situation is more optimistic that the market currently reflects. "I think the euro is going to trend back to 1.105 on Greek optimism and slightly weaker U.S. data," Richards said. He expects a "slight dollar down week, and a good week for equities, and I think Treasurys are steady."

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Richards said the Fed is unlikely to provide any surprises, so the next big piece of information for the market will be the April nonfarm payrolls on May 8, after March's weak 126,000 jobs.

"I think the markets will steadily drift higher. The 'risk on' scenario remains and then there are three or four days before payrolls where the market could correct slightly. Next week should be fine, and then a nervous week going into payrolls. I see payrolls as a binary event," he said.

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He said the payrolls number could be a big market mover in either direction, since the markets are waiting for a next clue on the Fed's thinking on rates. The April jobs report was well below the recent trend, and economists are waiting to see if it was a once off. "We kind of lost April because of that Good Friday (March jobs) number. The markets didn't know how to take it. The market really is looking for some direction here," he said.

As stocks rallied in the past week, the Nasdaq regained its 15-year high. It ended the week at 5,092, up 3.3 percent, but still below its intraday high of 5,132. The Dow rose 1.4 percent to 18,080.

West Texas Intermediate oil futures ended the week at $57.15, a gain of about 3 percent.

Read More US business investment plans fall for 7th straight month


Earnings: Apple, Tenneco, Restaurant Brands Intl, Crane, United Health Services, AvalonBay, General Growth Properties, Hartford Financial, PartnerRe, The Container Store, Olin, WR Berkley, Rent-A-Center, Roper, American Financial Group, Canon

9:45 a.m.: Services PMI

10:30 a.m.: Dallas Fed survey

1 p.m.: $26 billion 2-year notes


Fed meeting starts

Earnings: BP, Bristol-Myers, Merck, Pfizer, Ford, Honda Motor, Total, Aetna, Twitter, Kraft Foods, UPS, GoPro, Express Scripts, Western Digital, Panera, Yamana Gold, US Steel, Kaiser Aluminum, Corning, Cummins, Owens-Illinois, Supervalu, Penske Auto Group, JetBlue, Genworth Financial, Buffalo Wild Wings, Applied Micro, Samsung Electronics, Aflac, AK Steel, Parker Hannifin

9 a.m.: S&P/Case-Shiller

10 a.m.: Consumer confidence, housing vacancies

1 p.m.: $35 billion 5-year notes


Earnings: Deutsche Bank, Fiat Chrysler, Northrop Grumman, General Dynamics, Hess, Starwood, Brunswick, Carlyle Group, Spirit Airlines, Norfolk Southern, Southern Co, Time Warner, Garmin, GrubHub, International Paper, Thomson Reuters, MasterCard, Marriott, Whiting Petroleum, Williams Cos, Boston Beer, Cabot, Murphy Oil, Baidu, Vertex, Yelp, Shutterfly, LaQuinta, Goodyear

8:30 a.m.: Q1 GDP, pending home sales

1:00 p.m.: $29 billion 7-year notes

2:00 p.m.: FOMC statement


Earnings: ExxonMobil, ConocoPhllips, Royal Dutch Shell, Sanofi, Statoil, BNP Paribas, Visa, AIG, LinkedIn, Colgate-Palmolive, Celgene, Delphi Automotive, Air Products, Cigna, Cardinal Health, Sony, Time Warner Cable, Teva Pharma, Viacom, Beazer Homes, First Solar, FireEye, Dreamworks Animation, Healthsouth

8:30 a.m.: Initial claims, personal income/spending, employment cost index, Fed Gov. Daniel Tarullo

9:45 a.m.: Chicago PMI


Vehicle sales

Earnings: Chevron, CVS Health, Aon, Calpine, Clorox, Moody's, Newell Rubbermaid, Duke Energy, Weyerhaeuser, TransCanada, VF Corp, Madison Square Garden, Legg Mason, CBOE

8:30 a.m.: Cleveland Fed President Loretta Mester

9:45 a.m.: Manufacturing PMI

10 a.m.: ISM manufacturing, construction spending, consumer sentiment

3:45 p.m.: San Francisco Fed President John Williams


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