NEW YORK ( TheStreet) -- Since a real pullback has yet to materialize for the broad market, it looks like an "invisible" one will have to do. Mark Arbeter, chief technical analyst at S&P Capital IQ, has been saying stocks are overbought since early February when the S&P 500 was still in the 1350 range, and he's still holding to that stance. "The relentless advance in equities continues almost unabated, but sooner or later, there will be a pullback to cool off the feverish readings seen in momentum, internals, and sentiment," he wrote in commentary on Friday. "With the S&P 500 at its highest level since June 2008, the DJIA at its highest point since January 2008, and NASDAQ Composite at its highest peak since November 2000, picking potential upside chart resistance becomes tougher as many years have passed and prior pivot highs become less predictive as potential ceilings." For now, Arbeter is watching to see whether the S&P 500 will be able to hold 1400, as it did on Friday, finishing at 1404. If not, he's looking for a 4-6% haircut to occur over a two-to-four week period. The next point of upward chart resistance for the index is around 1440. If the index does stall at 1400, Arbeter said: "We then could have an ending rally during the second quarter taking the index to the 1,425 to 1,475 region. This, in our view, would represent an intermediate-term top, with a 10% to 15% correction during the second half." In his analysis of the stock action since his call in early February, Arbeter argues that there's been "what could be called an invisible pullback by some sectors, indices and foreign markets," with the 6% decline in the Dow transports from early February through early March serving as the prime example. "This raises a somewhat compelling and difficult question, in our view," he wrote. "Was this internal pullback or market rotation during February and the first part of March all we are going to get as far as downside? We think not, but certainly a possibility. One thing that is clear, in our opinion, is that it was not enough to work off momentum divergences, overbought internal conditions and bullish extremes on many sentiment indicators."
There does seem to be some feeling out there that a stall in this rally, which has the S&P 500 up 25%-plus since early October, should have happened by now, that the moment has passed in a sense. The breakout this week after the stress tests were largely positive and the Federal Reserve acknowledged the economy had improved since January ushered in a new wave of bullishness with the yield on the 10-year Treasury ticking up to 2.3% stoking the theory that money rushing out of bonds could flow into stocks. "The beginning of secular equity bull markets after WWI, WWII and during the 'War against Inflation' in the early 1980s all coincided with a major inflection point in LT bond yields," said Bank of America Merrill Lynch in a research note on Friday. "If Bernanke, Draghi, King & Shirakawa win their current 'War against Deflation,' a 'good' bear market in bonds (rather than a 'Greek' bear market in bonds) should coincide with a major break to the upside in equity markets." Credit Suisse went further on Friday, lifting its year-end S&P 500 target to 1470 from 1400 and saying: "We see growing risks for bonds (and thus reduce our weighting in government and corporate bonds, which we add to equities). We now prefer equities to corporate bonds as therisk on trade." There was one sign this week though that the bullishness may have a limit, as Apple ( AAPL) was soundly pushed back from $600 on Thursday. In its note, Bank of America Merrill Lynch said investors should be watching the price action in what's now the world's biggest company. "Apple's market cap is now larger than that of the entire US retail sector," the firm pointed out. From a contrarian's point of view, the time to sell a stock is when everyone loves it and that's certainly the case with Apple now as 47 of the 54 analysts covering the company are at either strong buy (24) or buy (23), and sell-side firms seem to boost their price targets nearly every day.
It was UBS's turn on Friday, going to $675 from $550. Even as the new iPad was flying off the shelves in its first day of retail availability, the firm was out saying the iPhone 5 will be an even bigger deal. "We expect Apple to launch its redesigned iPhone 5 in October & expect the company toaccelerate the number of initial carriers it sells into to drive its biggest launch ever," UBS said in its research note. "Although supply chain constraints are difficult to assess at this point, we expect Apple to be prepared for a big launch. While the iPad 3 reception & dividend are important, we believe the iPhone 5 will trump both as a catalyst." Apple shares closed Friday at $585.57, up a penny, and it will be interesting to see if the stock mounts another run at $600 next week, or else takes a real break for the first time in 2012. If the latter is the case, the broad market could follow, and Arbeter's long-awaited pullback may finally materialize. > >> Bull or Bear? Vote in Our Poll -- Written by Michael Baron in New York. >To contact the writer of this article, click here: Michael Baron.