Stocks Overbought, Ripe for Pullback: Analyst

Updated from 3:53 p.m. to include information about Friday's close, individual stocks leading the S&P 500 higher in 2012.

NEW YORK ( TheStreet) -- Just when the bullishness was reaching a crescendo, the plans to float Greece another couple bucks hit a stumbling block (shocker!), and stocks sank.

But whatever the headlines from the old continent, at least one chart watcher says the technicals are pointing to a good old-fashioned sell-off for equities.

"We believe the current stock market rally has ended and that stocks are vulnerable to a 3% to 5% pullback over the next four weeks or so," writes Mark Arbeter, chief technical strategist at S&P Capital IQ, in commentary released Friday. "Some of the major indices have moved very close to some of our key technical targets, and at the same time, we're seeing some frothy sentiment indicators as well as some very overbought price and market internals."

Arbeter isn't turning bearish though. He just thinks stocks are due for a breather.

"Once a potential pullback runs its course, we look for new recovery highs for the market," he says.

Stocks have traveled nearly straight up in 2012, rebounding after a lackluster 2011 where the S&P 500 was virtually flat, the Dow Jones Industrial Average tacked on 5%, and the Nasdaq Composite lost a little over 2%.

The S&P 500 was up 7.5% on a price basis through Thursday's close at 1352, its fastest start since 1997; the Dow had gained 5.5%, clawing back to within shouting distance of 13,000; and the Nasdaq had surged more than 12% in 2012, returning to levels unseen in more than a decade.

And while 2011 was marked by extreme bouts of volatility, especially from late summer when the Standard & Poor's lowered the U.S. government's credit rating through the first half of October, when the current surge began, 2012 has mostly been a slow melt-up. Low volume, steady gains. Triple-digit swings in the Dow have been few and far between, along with 1% moves in the S&P 500.

It's the sheer heights that stocks have reached though that sounded the alert for Arbeter.

"First, it the S&P 500's climb this week represents key chart resistance from the high last year," he writes. "Many times following a major correction, the old highs represent an opportunity for profit taking. In addition, the 1,355 to 1,380 region represents pretty decent overhead supply."

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