When it comes to the health of the U.S. stock market over the next few weeks, corporate earnings will tell the story.

Alcoa Inc. (NYSE: AA) kicks off the third-quarter earnings season on Wednesday. My guess is that over the next few weeks, as third-quarter earnings are reported, we will have the opportunity to witness a powerful rally that will scamper the Standard & Poor's 500 toward the 1,200 level and the Dow Jones Industrial Average to the 10,000 threshold. My expectation is that major tech and industrial companies will create upside earnings surprises and issue positive comments about a stabilizing global economy.

My only concern is that there have been very few negative earnings preannouncements so far. Although that sounds like a good thing, the record shows that quarters with the highest level of negative announcements tend to result in the best market performance. It's one of those weird market paradoxes, but usually it's good to get bad news out of the way so that investors can later bid prices up in their time-honored "better-than-expected" routine.

Two Ways to Ride the Bull

Stocks stabilized on Friday, recovering from early losses to move briefly into positive territory before sliding lower into the closing bell. A bad jobs report hung over the trading session like a dark thundercloud. As a result, the major indices posted their second consecutive weekly loss. But there are signs the storm is about to clear.

For the day, the Dow lost 0.2%, the S&P 500 lost 0.5%, the Nasdaq Composite Index  lost 0.5%, and the Russell 2000 lost 0.6%.

It appears a few buyers were crawling back into the market to buy the dip, reinforcing our view that the bulls still reign and that weakness should be seen as an opportunity to extend long positions: Lowry Research Corp. notes that buying power increased slightly, while selling pressure decreased. Breadth improved from Thursday's heavily negative session, as declining issues outpaced advancers by a 2:1 ratio, while down volume accounted for 68% of total volume.

Industrial and consumer discretionary stocks led the decline, with the Industrials SPDR Exchange-Traded Fund (NSE: XLI) and the Consumer Discretionary SPDR ETF (NYSE: XLY) both falling 1.3%. Consumer staples continue to show relative strength, rising 0.3%. The sector has been a laggard coming out of the March low, rising 32% compared to the 52% rise in the S&P 500 and the 66% increase in consumer discretionary, or retail, stocks. Whether it's because of defensive positioning, or bearish investors finally deciding to join the bull market by focusing on value, these stocks look ready for continued gains.

A Crossroad For U.S. Stocks

Since the U.S. Federal Reserve announced on Sept. 23 that it would not be extending its direct purchases of mortgages and U.S. Treasuries, stocks have lost more than 4%. At the time, I wondered if the Fed would impede the bulls by beginning to exit some of its liquidity programs.

While that remains to be seen – in the near term, at least – is whether the stocks that look ripe for a rebound after sliding lower on a spate of softer economic news will actually regain that higher ground.

By all rights, with investors already shaky after Thursday's plunge, the bears should have smashed the major indices to smithereens on Friday.