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."
He continued: "This non-confirmation by the transports is a bit worrisome and cause for some caution. We note that the divergence between the two indexes is not major from a price and time standpoint, so this is another reason that we only see a small pullback in the overall market." Arbeter also questioned how much higher the financials, one of the sectors leading the broad market higher along with information technology, can go from here. Bank of America ( BAC), up 45.5% year-to-date, is the top 2012 gainer in the Dow Jones Industrial Average, which has risen 6% through Friday's close, as well as one of the biggest advancers in the S&P 500. The KBW Bank index has jumped 15.8% year-to-date. "The financials are also starting to show some relative weakness as the S&P 500 Financials index recently ran into an area of heavy overhead supply," he wrote. "While still in uptrends, some of the other cyclical sectors of the S&P have run up to major regions of overhead supply after their torrid upside moves, and this, in our view, is a prescription for a pullback." Arbeter said trendline support for the S&P 500 is at 1309 when projecting out around three weeks, and noted that: "The rising 50-day exponential moving average sits at 1,300, and many times this average acts as support during intermediate- and long-term uptrends." Apple shares hit a new all-time high of $526.29 this past Wednesday but turned around abruptly during the session to close down for the day at $497.67. The stock got back to its winning ways on Thursday, then finished Friday at $502.12, up 24% for the year and 10% for the month. The sell side only gets more ecstatic about Tim Cook's juggernaut though. An amazing 52 of the 57 analysts covering Apple are at strong buy (26) or buy (26), and the 12-month median price target sits at a lofty $600. On Friday, Oppenheimer was the one doing the gushing, lifting its earnings estimate slightly for fiscal 2012 and boosting its target by 12% to $570 from $510. "Our iPhone checks suggest only a small post-holiday slowdown in iPhone 4S demand. iPad demand has fallen more post-holiday, although we believe this in part reflects the expectation of a new iPad3 announcement (likely updates include an upgraded display and faster processor)," the firm said. "We expect the iPad2 to step down to a lower price point expanding Apple's reach to lower priced tablet tiers. There's no change to our thesis--we're bullish on more iPhone and iPad expansion and potential new markets, particularly smart-TV." Oppenheimer now expects earnings of $45.78 per share from Apple in 2012, up from a prior projection of $45.14 per share. The consensus is currently calling for a profit of $42.73. Even with the recent run-up, which has in part been fueled by speculation Apple may break with tradition and move to pay shareholders a dividend, the stock's forward price-to-earnings multiple is a reasonable 10.58X vs. 13.05X for the S&P 500. S&P Capital IQ's Arbeter has a point about the unbridled bullishness getting worrisome. The American Association of Individual Investors weekly sentiment survey climbed to 51.6% for the week ended Feb. 9, well beyond the long-term average of 39%, before pulling back to 42.7% this week. Also, there's been a major drop in those betting against the market as short interest has plunged. Research firm TrimTabs said earlier this week that NYSE short interest decreased 6.7% to 12.5 billion shares at the start of February, the lowest level on record, and down from a record high of 16.1 billion shares on Sept. 30. -- Written by Michael Baron in New York. >To contact the writer of this article, click here: Michael Baron.