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Updated from 5:30 p.m. ET to include additional analyst commentary.



) -- The theory that there's still plenty of money on the sidelines waiting for stocks to pull back in order to jump in could get tested soon.

Mark Arbeter, chief technical strategist at

S&P Capital IQ

, has been out with commentary for the past two weeks saying the

S&P 500

is due for a swoon since surging more than 20% off the October lows, and he's not backing off now.

"We still believe that the stock market is in the process of tracing out a minor top within the confines of an intermediate-term uptrend," he wrote on Friday. "We see the major indices falling 3% to 5% over the next month, before resuming their uptrend, which we think will take the major averages to new recovery highs by the second half of the second quarter."

The great rally of 2012 has been a low-volume, churning affair. Triple-digit swings in the

Dow Jones Industrial Average

have been few and far between. Since Jan. 18, the


, Wall Street's so-called fear gauge, has only closed above 20 two times, and its finish on Thursday at 16.83 was its lowest since early July.

Last year's big losers have been carrying the water for the most part with names like

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among the top percentage gainers in the S&P 500.

From a sector standpoint, information technology has been the leader, up more than 14% so far this year, helped by


(AAPL) - Get Apple Inc. Report

of course; followed by the financials, up more than 13%, and the materials sector, which has gained more than 12%. The only two sectors in negative territory are utilities, down 3.5%, and telecommunications, off less than 1%.

This holiday-shortened week was positive for the major indices but not by much. Greece reached a deal on austerity measures to secure its next round of bailout funds from Eurozone leaders, and managed to launch a debt swap with its private creditors on Friday, allowing investors to take a

so far, so good

view of the region. Earnings season is winding down and the fact that it was no great shakes hasn't been a problem, partly because the improving data on employment and housing has picked up the slack.

Both the Dow and S&P 500 were up 0.3% for the week, while the Nasdaq tacked on 0.4%. Year-to-date, they've appreciated 6.3%, 8.6%, and 13.8%, respectively. As of Friday's close at 1365.74, the index's highest finish since June 2008, the S&P 500 is right up against its 2011 intraday peak of 1370.58, and Arbeter is seeing signs that it's primed for a dip.

"While the index itself has moved slightly higher of late, we are seeing some bearish daily momentum divergences that many times coincide with short- to intermediate-term tops," he wrote. "Market internals are also starting to diverge as the NASDAQ and NYSE up issues ratios have rolled over while the down issues ratios on both exchanges have turned higher."

Arbeter continues to look for a drop down to 1,290 to 1,320 region next month, and believes this will present investors with "a very good opportunity to once again raise equity exposure."

The view that any weakness will likely be a blip before stocks press higher is shared by Sam Stovall, chief equity strategist at S&P Capital IQ, which has a year-end target of ? for the S&P 500.

"No one likes to chase a rally, but few are willing to miss much more of a widely unanticipated advance," he wrote earlier this week. "With the DJIA and S&P 500 nearing psychological thresholds, these current ceilings may soon become future floors."

Stovall said the historical data shows the S&P 500 has, on average, taken roughly four months to recover from corrections, and then typically takes another four months to rise an additional 10% before declining 5% or more.

"Resistance levels are rarely eclipsed on the first try," he noted. "Sentiment indicators currently point to an overbought condition, in our opinion, which makes the market vulnerable to real or perceived shocks, such as Iran, that could lead to a minor decline in prices before the markets successfully push higher."

If a pullback does come to pass, the resilience of the bulls will face its first test of the year, and it will be interesting to see if all the

hedge fund managers and retail investors

saying they love stocks right now put their money where their mouth is.

Arbeter again flagged the overwhelming bullishness of late as a contrarian indicator supporting the idea that equities are overbought, and also noted the action in the Dow Transports has been bearish.

"The Dow Jones Transportation Index continues to weaken, and is now almost 5% below its recent high," he wrote. "That recent high, by the way, was 4% below its 2011 high, which the Dow Jones Industrials recently passed. This clear nonconfirmation is a bit disturbing and warrants caution, in our view."

Meanwhile, if the broad market does avoid a swoon next month, it could have Apple to thank for it, according to JPMorgan. The stock has gained nearly 40% since October but the firm was out pounding the table on Friday, saying it has more

room to run

, a scenario that would provide a counter-balance to a round of profit-taking.

JPMorgan said it sees Apple as a "cyclical sector unto itself" and argues that it's still "surprisingly underowned" by institutional investors.

"Of the 282 mutual funds indexed to the Russell 1000, a surprising 40% do not have AAPL as a top 10 holding - this despite the fact that AAPL is the largest stock in the Russell 1000," the firm said. "Our YTD analysis of performance shows that funds OW

overweight AAPL (by 25-75 basis points) have meaningfully outperformed peers. Additionally, 77% of the shares are held institutionally, which is 415bp below the S&P 500 overall and also 500bp below the average Technology holding."

Of the S&P 500's 104-point gain in 2012 through Thursday's close, Apple accounted for 11 points, according to JPMorgan's analysis, and it estimates a return of the stock to historical valuations would give the index the boost it needs to get over the 1370 hump. JPMorgan has a 1430 year-end target on the S&P 500, and believes investors should be increasing exposure to cyclical names as the broad market churns.

"AAPL at current valuation is undervalued on absolute P/E (12.0x vs. 12.7x S&P 500), its relative P/E (94% vs. historical avg of 164%), or PEG ratio," the firm said. "By our estimates, moving to historical avg adds 24-38 points to the S&P 500 - in short, showing AAPL is important to our Cyclical call."

Check out TheStreet's quote page for Apple for year-to-date share performance, analyst ratings, earnings estimates and much more.


Written by Michael Baron in New York.

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Michael Baron


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