'Dumb Money' Keeping Stocks Afloat: Analyst

Updated from 7:20 p.m. EST to include analyst comment on Apple.

NEW YORK ( TheStreet) -- It wasn't the improvement in initial jobless claims or the growing likelihood that Greece will get another round of bailout money and stave off default that drove the stocks higher this week.

And no, it wasn't Jeremy Lin either. Rather it was the so-called dumb money, according to Mark Arbeter, chief technical strategist at S&P Capital IQ, who was calling for a timeout for this rally a week ago. The bullishness just got to be too much to resist.

"In recent weeks, bulls have come out of the woodwork, and, in our view, they are catching the end of the current rally," Arbeter said in commentary on Friday. "Sentiment, price momentum and market internals have been pushed to extreme overbought levels, as the dumb money rushes in and the smart money distributes stock on price strength."

The S&P 500 booked a gain of 1.3% this week, closing Friday at 1361.23. That's the index's highest close since a 1363.61 finish on April 29, 2011, and it's just a sliver ahead of its close at 1361.22 on May 2, 2011. Arbeter is sticking to his guns, saying the S&P 500 could fall back to the 1290-1320 region sometime in March, and those levels would be where investors should consider amping up their exposure to equities.

Right now, though, the charts are still pointing to some turbulence ahead, he says.

"We believe that the stock market is in the process of topping out from a short-term perspective and think that the blue chip indices will have to endure a minor haircut before the next upleg begins," Arbeter wrote, adding later: "Historically, money is lost quickly when chasing parabolic charts, e.g., the NASDAQ 100 and its main component, AAPL Apple ( AAPL) . Which brings us to the famous quote by Alexander Pope, 'Fools rush in where angels fear to tread.'"

Providing some ballast for the analyst's apprehension is the action in the Dow Jones Transportation index.

"While the excitement in some parts garners much of the media's attention, the Dow Jones Transports, a key cyclical index, and sometimes a leading indicator for the overall stock market, has quietly rolled over, putting in a lower high and lower low," Arbeter noted. "In addition, while the DJIA has exceeded its 2011 high, the DJ Transports, at their recent closing high, was about 4% below its 2011 peak."

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