Market Preview: When Bearishness is Bullish

"We think the stock market may be emerging from the typical choppy bottoming formation and into a very fluid move higher," he said. "This potential 'sweet spot' of many 5-wave advances usually sees many weeks of consistently higher prices, where pullbacks are bought, and investors with cash are left sitting on the sidelines waiting for decent-sized pullbacks that never materialize. We saw these fluid moves in the 2010/2011 rally as well as in 2012. We believe it also forces bearish institutional investors to allocate capital toward stocks and bearish strategists to upgrade their opinions, fueling further gains in stocks."

Among the other positive signs that Arbeter points out are the NYSE advance/decline line recently hitting an all-time high, a number of Wall Street strategists recommending a low asset allocation to equities and breakouts in some mega-cap stocks from decades-long bases to new all-time highs.

Arbeter also notes the action in the S&P 500's counterparts measuring the performance of small- and mid-caps is shaping up well, as is the path traced by the Dow Jones Transportation index.

"While we ponder potential new all-time highs for the S&P 500 in 2013, there are a few other key indices that are looking bullish longer-term and aren't too far from posting all-time highs, by our analysis," he wrote. "The S&P SmallCap 600 is only 4.5% below its all-time high posted in March while the S&P MidCap 400 is about 6% under its April 2011 all-time high. And despite all its recent price volatility, the DJ Transportation average is only about 7% beneath its July 2011 all-time peak. Despite recent all-time highs in these indices, they have basically traded sideways since their peaks in 2007 and may soon form very large cup-and-handle formations, which would measure to much higher price levels over the next couple of years."

As for tomorrow's scheduled news, General Electric(GE) is the big earnings report Friday morning. The average estimate of analysts polled by Thomson Reuters is for a profit of 37 cents a share in the June-ended period on revenue of $36.79 billion.

The stock is up 10% so far in 2012, outperforming the Dow, but it's pulled back a bit since hitting a 52-week high of $21 on March 28. GE has topped Wall Street's consensus view in seven of the past eight quarters, beating the estimate by an average of 8.6% in those instances.