This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Have Stocks Topped Out for 2012?

^INX Chart ^INX data by YCharts

NEW YORK ( TheStreet) -- Friday was a supremely ugly day for equities, the kind of bloodbath that will test the conviction of even the most bullish investors.

Such an extreme pullback after the period of outperformance that the major U.S. stock averages have enjoyed since early summer begs the question: Is the market putting in a top? According to S&P Capital IQ Chief Technical Strategist Mark Arbeter, the answer is no.

"While the S&P 500 remains in a short-term downtrend based on a series of lower highs and lower lows, there are a number of key reasons we think that the minor retracement may be quickly coming to an end," he wrote in commentary released late in Friday's session. "First, the '500' fell from the top of its bullish channel down to the bottom of this channel. Second, the index pulled right back to its breakout area in the 1,420 to 1,425 region. Breakouts followed by tests of the breakout area are seen many times in a bull market."

Arbeter also saw other reasons or optimism, saying a drop back to the 50-day moving average, as seen with the S&P 500 at 1430, happens "many times during a bullish run," and that the index had cycled "back to neutral territory" from a momentum standpoint. Friday's low for the S&P 500 was 1429.85

"We think this allows the index to resume another leg higher," he wrote, describing a visit to the 50-day moving average as a "pretty good entry point" while adding that there is also major chart support in the 1420 area.

"Yes, a break of 1,430 will complete a small double top, opening the possibility of a measured move down to 1,400," Arbeter acknowledged. "We see this as a worst-case scenario and a low probability outcome."

The mass exodus out of tech stocks, indicative of panic selling, and the spike in bearishness among retail investors revealed by this week's American Association of Individual Investors's sentiment survey were viewed as contrarian indicators by Arbeter.

"From an intermediate- to longer-term perspective, we think these readings just don't jive with a major market top. In our view, the majority are bullish at tops and bearish at bottoms," he wrote.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
GE $27.25 0.00%
GOOG $524.05 0.00%
AAPL $124.75 0.00%
FB $80.78 0.00%
TSLA $206.79 0.00%

Markets

DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs