Microsoft Corp. (MSFT) and Amazon.com (AMZN) missed earnings targets when they announced after the close on Thursday, so the Nasdaq (NASD) and the broad market were expected to take a hit on Friday.

The weak earnings by the two big tech stocks restrained the Nasdaq, but buying in health care stocks — a defensive sector — offset tech’s losses, so there was little impact on the bullish structure of the past two weeks.

Johnson & Johnson (JNJ), Merck (MRK) and Pfizer (PFE) each gained more than 2%, offsetting a decline of 8.3% by Mr. Softie and a fall of 7.9% for Amazon. So, although the Nasdaq fell .39%, the S&P 500 (SPX) gained .3%, and the Dow Jones Industrial Average (DJI) gained .26%, closing the week above 9,000 for the first time since January.

At the close on Friday, the Dow was up 24 points to 9,093, the S&P 500 gained 3 points to 979, and the Nasdaq lost 8 points falling to 1,966.

The NYSE traded more than 1 billion shares with advancers ahead of decliners by just under 2-to-1. The Nasdaq traded 677 million shares with advancers ahead by slightly more than 7-to-5.

For the week, the Dow rose 4% to its highest close since Nov. 5, 2008. The S&P 500 rose 4.1%, and the Nasdaq gained 4.2% for the week. Nasdaq’s small decline on Friday snapped a 12-session winning streak, a feat not seen for more than 17 years.

On Friday, crude oil for September delivery gained 89 cents to $68.05 a barrel on hopes of an economic recovery. The Energy Select Sector SPDR (XLE) gained 53 cents, closing at $51.19, with the next resistance at the midpoint of June’s high island at around $52.50. The closing high in June was $54.03.

August gold fell $1.70 to $953.10 an ounce, and the PHLX Gold/Silver Index (XAU) closed at $149.50, up 21 cents.

What the Markets Are Saying

Last week was a milestone. It appears that with the breakout of the markets we have exited the first phase of a bull market — accumulation.

Charles Dow identified this first of three phases of a bull market as “the period during which farsighted investors are willing to pick up shares in spite of the bad news and at distress prices.”

This is the time when the news is at its worst with huge economic storm clouds and threats of enormous proportions. But it is also when major market bottoms occur (March 2009), and when the public is disgusted, out of the market, and vows never to again buy stocks.

Phase two begins with a breakout from a major bottom formation, like a reversed head-and-shoulders, and is confirmed by two of the three major indices. Phase two is marked by an improved business tone, a rising trend in corporate earnings, and is “characterized by a fairly steady advance.” But skepticism is very high. Despite that, though, the market “climbs a wall of worry.”

I believe that we entered phase two last week. After the massive breakouts of the major indices, and the Nasdaq’s mild response to the poor earnings of Mr. Softie and Amazon, the Street is becoming more bullish — or at least beginning to accept the reality of a slow upturn in the economy.

This is the phase where “the technical trader reaps his best harvest of profits.

Phase three arrives with the market boiling with excitement and high volume — even the cabby and your barber are giving you stocks to buy. All the news is good and rife with predictions that the market will double from where it is now. It is clear that we have not reached phase three yet.

But now even the American Association of Individual Investors (AAII) Sentiment Survey, which is widely used to gauge public sentiment, while still on the bearish side has narrowed to just under 5 percentage points between bears and bulls. Just three weeks ago, the difference favored bearish sentiment by more than 27 percentage points. Remember that the AAII Sentiment Survey is a contra-indicator, i.e., the assumption is that the public is usually wrong. Since July 9, at just 28% bullish, they have been dead wrong.

Now virtually all of our internal indicators are grossly overbought but have yet to issue sell signals. And some of the sentiment indicators are shifting, telling us that the threat of a correction is high. But momentum is very high, too, and that favors the bulls. Even though a correction is overdue, the trend is now up and the smart money is buying.

Today’s Trading Landscape

Earnings to be reported include: A.H. Belo Corp., ACCO Brands, ACE Ltd. Actuate Corp., Alberto Culver Co., Alpha Natural Resources, American River Bankshares, Amgen, Associated Estates Realty, Axsys Technologies, Bank of Hawaii Corp., Boardwalk Pipeline Partners LP, Buffalo Wild Wings, Cal-Maine Foods, CF Industries, Changyou.com Ltd., Corning, Cott Corp., Covenant Transport, Crane, CTS Corp, Curtiss-Wright Corp, Danaos Corp., Desarrolladora Homex S.A. de C.V., Dime Community Bancshares, Empresas ICA S.A.B. de C.V., Enernoc, Enterprise Products Partners LP, Entertainment Properties Trust, Fidelity National Financial, First Advantage Corp, First Commonwealth Financial, Foundation Coal Holdings, Franklin Electric, Frischs Restaurants, GulfMark Offshore, Hawaiian Holdings, Health Management Associates, Health Stream, Heartland Financial USA, Hexcel Corp., HF Financial, Honeywell, International Coal Group, Intevac, Invesco, Kilroy Realty Corp., Lacrosse, LaserCard Corp., Liberty Property Trust, Lorillard, Manitowoc, Masco, Meritage Homes Corp, MFA Financial, NBTY, Old National Bancorp, Olin Corp., Owens & Minor, PartnerRe Ltd, Penson Worldwide, Phase Forward, Plum Creek Timber, PrePaid Legal, PrivateBancorp, RadioShack Corp., Radware, Reinsurance Group of America, Rent-A-Center, Rock-Tenn Co., RPM International, Silicom Ltd, SK Telecom, SL Green Realty, SOHU.com, Solutia, SonoSite, StellarOne Corp, Successfactors, Teleflex, Tellabs, Telmex Internacional SAB de CV, TGC, Torchmark, Transatlantic Holdings, Travelzoo, Veeco Instruments, Verizon, Virtual Radiologic Corp., W.R. Berkley, Wausau Paper Corp., WSFS Financial and Zoran Corp.

Economic report due: new home sales (the consensus expects 350,000).

Late news: Q2 earnings versus estimated: Verizon (VZ) 63 cents versus 62 cents; Aetna (AET) 77 cents versus 78 cents; RadioShack (RSH) 39 cents versus 29 cents; Corning (GLW) 39 cents versus 32 cents; and Honeywell (HON) 60 cents versus 60 cents.

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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of his most recent market outlooks.