'Stealth correction' could cause quite a stock market ride

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Talk about your market roller coaster rides.

Piper Jaffray, arguably the most bullish firm on Wall Street, is warning investors that a steep slide is coming in stocks, followed by a huge push higher.

A "stealth correction" is the culprit for the likely stomach-churning swing ahead, the firm argued in a report for clients Monday. Because the market has yet to endure the major 10 percent or better—the widely accepted definition of an official correction—investors may have gotten too complacent about the market's near-term strength.

"At this juncture, we believe this stealth correction in the broader market is leading to a false sense of security," technical market strategist Craig W. Johnson and others wrote. "The combination of a clear rotation toward defensive stocks and sectors, easing 10-year bond yields and narrowing market breadth should NOT be ignored."

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Here's how bad things could get: The S&P 500 stock market index could tumble all the way to 1,650 or even 1,600 before reversing course higher. That's a 15 percent potential tumble for a market that has felt little resistance to the upside for more than two years now and is on a runaway 184 percent price gain over the past five-plus years.

The market is up just 1.6 percent year to date but has managed to duck a series of headwinds—negative first-quarter economic growth, geopolitical turmoil and a sharp selloff in momentum stocks—that many had predicted would spell trouble at least in the near- to medium-term.

Piper Jaffray's experts think several factors, such as typical market performance during a midterm election year and low bond yields that indicate economic underperformance, indeed will drag the market substantially lower.

The firm doesn't have a specific time frame for when the selloff will come.

Another firm, though, that is calling for a substantial market drop, believes the correction won't come until after the summer. Bank of America Merrill Lynch is in fact advising clients to buy this month rather than following the popular adage of "sell in May and go away."

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Michael Hartnett, chief market strategist at BofAML, believes an improving macro environment coupled with high cash levels and diminishing geopolitical threats will lead to an "irrational exuberance" run that will catch fire during the summer.

The best trades, Hartnett said in a note, will be in emerging markets, utilities and telecoms, with the best contrarian bets to be on small-cap stocks and banks.

After that, though, the danger comes. Hartnett sees upward pressure on interest rates in the fall, with the market bracing for Federal Reserve action.

"When the end of zero rates is threatened, likely this autumn, both credit and stock markets should correct sharply," he said.

BofA has a full-year S&P 500 price target of 2,000.

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The team at Piper is somewhat more buoyant, though.

Should the forecast for the big 15 percent drop happen, it will be followed by the index hitting the firm's year-end target of 2,100—which in turn would be a 31 percent bull snapback and would soothe the nerves of investors after the harrowing drop.

"We believe this correction will help reset investors' expectations and create an attractive entry point for what we believe will be a strong finish to 2014," Piper said.

—By CNBC's Jeff Cox.