Market Preview: Now Earn It

Updated from 5:47 p.m. ET with additional information on after-hours trading.

NEW YORK (TheStreet) -- Now that was a pullback.

The dip buyers were nowhere to be found on Tuesday as all three major U.S. equity indices dropped more than 1.5%. A confluence of factors fueled the selling, which marked a fifth straight losing session for stocks, but the problem in the main was Spain.

Rising bond yields for the world's twelfth largest economy led to a sharp sell-off across the pond with the FTSE closing off 2.2% and the DAX down 2.5%.

That spooked Wall Street, sending investors racing for the exits ahead of first-quarter earnings season, which actually got off to a decent start following a surprise profit from Alcoa(AA) after the closing bell.

The worries about Spain completed a trifecta of negatives for equities that have cropped up in the past week. First, the minutes of the latest Federal Reserve policy meeting released last Tuesday seemed to squash hopes for another round of quantitative easing from the central bank.

That was followed up by the weak jobs report for March on Friday, and then Spain stepping in for Greece as the poster country for eurozone worries. Add it all together, and the urge to take some profits is understandable after the S&P 500's merry 30%-plus gallop to an intraday high of 1422 on April 2 from its near-term low of 1075 on Oct. 4.

The big question now is what to do from here? Bank of America Merrill Lynch weighed in on the recent selling before Tuesday's opening bell, saying it believes the S&P 500 is going through a rest period, not a major top, and putting near-term support for the index in the 1340-1375 range.

The firm thinks mega-caps look primed to provide some leadership, citing what it termed "important recent breakouts" for Coca-Cola(KO) , Pfizer(PFE) , Qualcomm(QCOM) , and United Parcel Service(UPS) , and it likes both Cisco(CSCO) and Exxon Mobil(XOM) to go the same route.

B of A also detailed its safety check list for stocks, listing four criteria that it's watching for signs that 2012 will follow 2011's pattern and the old market adage of sell in May and go away will be play again this year.