Critical Juncture for Technical Analysts

NEW YORK (TheStreet) -- Believers in technical analysis see some bullish trends for stocks in the short term, but are divided over to how retail investors should approach the market at a critical juncture.

After Thursday's 1% jump, the S&P 500 has now run into overhead resistance at the 1044 level. That also puts the index 70 points above its nearest support level. If the S&P 500 were to break higher through resistance, it could continue to blaze a trail higher. On the other hand, a failure to do so could mean a drop below the 975-level if selling accelerates.

It's no surprise, then, that retail investors are divided on where the market will be six months from now. The American Association of Individual Investors' sentiment survey, which measures the percentage of individual investors who are bullish, bearish and neutral on the stock market for the next six months, has been mixed over the last month, with bearish responses edging neutral or bullish opinions three of the last four weeks.

"Don't forget, the retail investor is usually wrong when it comes to the market," says Ryan Detrick, senior technical analyst with Schaeffer's Investment Research. "Unfortunately, if you follow the sentiment survey by the AAII, it appears your average retail investor has been on the wrong side of this entire rally."

Some market analysts argue that there is little evidence that suggests the average retail investor has even started participating in the recent rally. "To me, the plunge from late last year until March was hedge funds panicking out and most of the rally since was hedge funds reversing their shorts," said Phillip Roth, chief technical market analyst with Miller Tabak. "That's a very professional trading market. Retail investors are just not participating."