Week Ahead: Earnings Seasons in Full Swing as Investors Watch for a Pull Back

As stocks climb to multi-year highs, investors are increasingly expecting a pull back, despite the promise of a good earnings season.

Major banks Citigroup and Bank of America [BAC 15.25 0.48 (+3.25%) ]; tech companies, like Apple [AAPL 348.48 2.80 (+0.81%) ], IBM and Google and industrial giant General Electric join dozens of companies reporting earnings in the week ahead. General Electric is the parent company of CNBC.

There is also a smattering of data, including home sales for December and weekly jobless claims.

Investors will look to earnings; sentiment towards Europe somewhat improved.

President Obama meets with Chinese President Hu Jintao in a closely-watched Washington summit on Wednesday. European finance ministers meet Monday and Tuesday and are expected to discuss expanding their bailout fund and other measures to stem the sovereign debt crisis.

The S&P 500 gained 1.7 percent in the past week to 1293, its best close since August, 2008. The Dow was up 112 points, or nearly a percent to 11,787, its best week since early December and its best close since June, 2008. Nasdaq rose 52 points, or 1.9 percent to 2755, its highest close since November, 2007. The S&P MidCap 400 set an all time high Friday, at 931.

Traders expect the S&P 500 to test the psychologically important 1300 level in the shortened holiday week, which includes options expirations on Friday. U.S. markets are closed Monday for the Martin Luther King holiday.

"I think we definitely go to 1300...It feels like it's got to go there before it does anything else," said Cardinal Capital's Patrick Kernan, who trades S&P options at the CBOE.

"I would think the market's propped up between now and next Friday," he said. "The market's pretty complacent here and probably going a little bit higher. After next Friday's expiration, then you might see people repositioning a little bit."

In the past week, Europe's debt concerns hung over the market but sentiment improved when it seemed officials would take action to expand the bailout fund and the European Central Bank purchased sovereign debt.

Auctions in Portugal, Spain and Italy were also seen as successful. The euro [EUR=X 1.3379 -0.0003 (-0.02%) ] did a quick about face and got a major lift from comments from European Central Bank President Jean Claude Trichet, who warned of signs of inflation in the euro zone. The euro gained 3.5 percent to 1.3375 against the dollar, its best weekly gain since May, 2009.

"Europe didn't trip us up. The (stock) market moved right past that," said PNC Wealth Management chief investment strategist Bill Stone. But Stone said the market is due for a pause.

"We have pushed it in terms of time and distance without some sort of a pull back. You hate to say we're due, but we're probably due. It seems like what is not going to trip us up are earnings. It's something else," he said. Stone expects earnings to beat analysts' quarterly consensus on S&P 500 earnings by about five percent.