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S&P has makings of 'bull market correction': Technician

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Play for a surprise rally?

The S&P 500 is approaching another all-time high, and volatility is near historical lows. On the surface, things may seem perfectly normal, but one technician who, accurately called the market pullback in September, warns that beneath the exterior lay the makings of a "bull market correction."

According to Ari Wald, market breadth and seasonal weakness could be signaling a massive decline for stocks. "The recent strength we've seen hasn't been enough to fix the divergence in the internal breadth work," Oppenheimer's chief market technician said last week on CNBC's "Trading Nation."

Wald pointed to the divergence between the NYSE advance/decline line and the as the major cause for concern. "It's been trending lower and that indicates that the breadth of the market is narrowing," said Wald. "I think that could be setting up for a bull market correction."

For Wald, the current state of the market is purely stock specific, as he believes weak stocks will get weaker and strong stocks will continue to tread water. "We believe a market-neutral stance is appropriate," he said. "In terms of S&P 500 levels, we see 2,130 as resistance and 2,040 as support followed by 1,970" before the advance resumes.

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From an earnings perspective, Erin Gibbs of S&P Capital IQ said she doesn't see "any major catalysts for a real pop" this year.

"We're looking at effectively half a percent or zero percent EPS growth for the year for the S&P 500, and that's pretty much where we started," said Gibbs.

Gibbs believes that stocks could remain virtually unchanged for the remainder of the 2015 and that the real story is whether earnings could advance in 2016. "It's really all about next year and if we can [beat those] numbers," she said.

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