'Relentless' Rally Still Vulnerable: Analyst

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."