After enjoying a three-month ride off the March lows, Wall Street is now bracing for payback time—a mild retreat that many market experts actually think would be healthy.
Since the market ricocheted off its March 9 lows, Wall Street has been debating when the market would see a pullback and what it would mean.
The pullback has been seen as an inevitability, but hasn't happened yet due to a number of factors, in particular the breaking of technical levels that has prevented the averages from taking any major dips.
Recent events, though, including gyrations in the market for US Treasurys and concerns over inflation, has lent more credence to the notion that a pullback is looming ever closer.
"We're in this cross current. There's still a ton of money on the sidelines. A lot of professionals don't believe this rally is true," said John Buckingham, chief investment officer at Al Frank Asset Management in Laguna Beach, Calif. "A retest of the lows from here would be an awful downturn. Even if you had a 10 or 15 percent downturn that would hurt."
"From a short-term perspective, it's anybody's guess," he added. "If I had to be a betting man on the near term I would say we're due for a modest pullback."
The 10 percent or more figure seems to have the most traction on the Street; Standard & Poor's chief investment strategist Sam Stovall earlier told CNBC he thinks a 15 percent pullback is in order "before I can breathe a sigh of relief and believe we're headed higher again."
A modest pullback, then, would be seen as a sign that the last three months have constituted not merely a bear rally but constructive steps toward forming a bull market.
Market pros are citing a variety of reasons for the impending pullback, from continued weakness in employment to uncertainty on government policies to simple gravity--what goes up eventually must come down, at least to some extent.
"Would you want to buy a stock now after a 30, 40 percent move? What's really changed?" Dave Rovelli, managing director of US equity trading at Canaccord Adams, told CNBC. "The credit market has eased obviously, but at the same time oil's going higher again, on it's way back to 80, 90 dollars a barrel...We have a lot of things we're not sure of."
Rovelli believes the market will draw a line in the sand when the Standard & Poor's 500 approaches 1,000.
Indeed, psychological as well as technical barriers seem to be more in control of the market than fundamentals these days.
Wall Street continues to rally on news that might otherwise be considered negative, while occasionally retreating at various resistance levels that can seem arbitrary to the casual observer but are very real to those in the pits.
The indexes were lower Thursday as oil prices continued their march higher, worrying investors that consumers would slow their spending habits.
A natural and perhaps less violent pullback may have happened sooner, but the indexes were propped up after more and more stocks began eclipsing their 200-day moving averages, a point the S&P passed last week for the first time in nearly a year.
- Get live S&P 500 quotes here
"The market has tried to sell off over the past few days yet has continued to march higher," Buckingham said. "A lot the technicians out there can only buy if you're trade above the 200-day moving average."
As a result, some traders think the market has gained too much and needs to retreat to valuations more closely resembling real market value.
Peter Costa, president of Empire Executions, has been calling for a 9,000 Dow by the summer, and the market is near that level already.
"I still believe that, but I think getting there too early too fast is not a good thing," Costa said in a CNBC interview. "I want to pull it back a little bit. As a matter of fact I'd be selling into this rally."
Likewise, Rovelli said he doesn't trust the rally and would not be buying long positions until the market experiences some retracement.
"As it gets closer to 1,000 S&P I think it's a psychological level. We're not going to go beyond it," he said. "I think you've got to start looking at certain companies and start shorting stock."
For Buckingham, though, the current market state represents a buying opportunity. He sees a bevy of bargains in stocks, and a significant market pullback only presents more opportunities.
Some of the companies he's been looking at lately include tobacco leader Altria, TCF Financial and Cornell, a prison operator that Buckingham says dropped sharply following an earnings warning and now represents value.
"Clearly it's a little more difficult today than on March 9 to find bargains, but they're still out there," Buckingham said. "We're not doing anything different than we've done before. But the opportunities are less plentiful."