Have Stocks Topped Out for 2012?

^INX Chart ^INX data by YCharts

NEW YORK ( TheStreet) -- Friday was a supremely ugly day for equities, the kind of bloodbath that will test the conviction of even the most bullish investors.

Such an extreme pullback after the period of outperformance that the major U.S. stock averages have enjoyed since early summer begs the question: Is the market putting in a top? According to S&P Capital IQ Chief Technical Strategist Mark Arbeter, the answer is no.

"While the S&P 500 remains in a short-term downtrend based on a series of lower highs and lower lows, there are a number of key reasons we think that the minor retracement may be quickly coming to an end," he wrote in commentary released late in Friday's session. "First, the '500' fell from the top of its bullish channel down to the bottom of this channel. Second, the index pulled right back to its breakout area in the 1,420 to 1,425 region. Breakouts followed by tests of the breakout area are seen many times in a bull market."

Arbeter also saw other reasons or optimism, saying a drop back to the 50-day moving average, as seen with the S&P 500 at 1430, happens "many times during a bullish run," and that the index had cycled "back to neutral territory" from a momentum standpoint. Friday's low for the S&P 500 was 1429.85

"We think this allows the index to resume another leg higher," he wrote, describing a visit to the 50-day moving average as a "pretty good entry point" while adding that there is also major chart support in the 1420 area.

"Yes, a break of 1,430 will complete a small double top, opening the possibility of a measured move down to 1,400," Arbeter acknowledged. "We see this as a worst-case scenario and a low probability outcome."

The mass exodus out of tech stocks, indicative of panic selling, and the spike in bearishness among retail investors revealed by this week's American Association of Individual Investors's sentiment survey were viewed as contrarian indicators by Arbeter.

"From an intermediate- to longer-term perspective, we think these readings just don't jive with a major market top. In our view, the majority are bullish at tops and bearish at bottoms," he wrote.

The picture is less bright when it comes to commodities, Arbeter said.

"Both crude oil and precious metals have been major beneficiaries of the Fed's last three QE programs, as this stimulus has been very good at knocking the dollar lower," he said. "However, the chart patterns on many stock indices are much more bullish than they are on commodities, in our view."

After pushing higher at the beginning of the week, the party ended abruptly for stock around midday Thursday when a surprise, early leak of disappointing quarterly numbers from Google ( GOOG) threw the market for a loop. A combination of poor results and outlooks from Microsoft ( MSFT), General Electric ( GE) and McDonald's ( MCD) among others just added to the negative sentiment on Friday, which just happened to be the 25-year anniversary of the Black Monday stock market crash, when the Dow endured its worst single-day percentage loss ever.

The Dow Jones Industrial Average sank more than 205 points, or 1.52%, to close at 13,343.51. The blue-chip index was able to hold onto a slim 0.11% gain for the week and is up 9.2% in 2012.

The S&P 500 decreased 24 points, or 1.66%, to settle at 1433, but added 0.32% for the week. The Nasdaq saw the deepest decline of the day, falling more than 67 points, or 2.19%, to close at 3006. The tech-heavy index lost 1.26% for the week.

The S&P 500 remains up just shy of 14% year-to-date, while the Nasdaq holds a gain of 15.37%.

-- Written by Michael Baron in New York.

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