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Market Pullback Overdue Even Before Goldman Lit Fuse

A litany of different market internals were signaling a pullback was overdue even before the SEC brought civil fraud charges against Goldman Sachs on Friday and sparked a 2-day selloff in stocks, according to traders and investors.

After earnings kicked into high gear last week with strong reports from JPMorgan Chase, Bank of America, CSX , and Intel, investors and analysts immediately extrapolated the positive results from these bellwethers to the companies yet to report.

Consider these statistics. About 115 of the nearly 130 members of the S&P 500 members expected to report earnings this week are trading above their 200-day moving average, a widely-used valuation barometer, according to data culled from Finviz.com. On Friday, the CBOE equity put/call ratio was showing its heaviest call volume – or bullish activity – relative to put volume – or bearish activity -- since 2000, according to Raymond James. And before Friday, the S&P 500 hadn’t notched a decline of more than 1 percent in 52 days, the longest such streak since 1994, according to Bespoke Investment Group. That’s one smooth ride.

“You’ve gotta ask yourself whether this Goldman probe is the exogenous event that triggers a correction, “ said Guy Adami, managing director at Drakon Capital, who had concerns about too-high valuation going into this earnings season. “Sometimes that’s how these selloffs begin,” said Adami, also a ‘Fast Money Trader’.

Not only will it be tougher for the rest of the companies reporting to meet the high bar set last week, the Goldman scandal casts a pall over the sector that was expected to contribute the most to earnings gains for the S&P 500.

The S&P 500 collectively is expected to post a 39 percent increase in first quarter profits, according to Thomson Reuters, which takes the numbers already out and combines them with the consensus analyst estimates for the companies left to report to calculate that figure. Remove the financial sector from that calculation, and the growth rate for the S&P 500 decreases to 29 percent.

“It was a bright, blue sky on Thursday,” said Tim Seymour, founder of EmergingMoney.com “Goldman’s and other financials’ earnings are likely to suffer from what kind of resolution comes out of this, but elsewhere this earnings cycle is going to be even better than what people expected.”

Seymour, also a ‘Fast Money’ trader, has been taking some profits in some transport-related names that ran high into earnings, but will be looking for some buying opportunities once this now suddenly “tough” earnings season ends.

The S&P 500 was up 9 percent year-to-date and posted its highest close since September 26, 2008 on Thursday before the Goldman news hit during the day on Friday.

“We are increasingly cautious, believing a near-term top in the equity markets has been registered,” wrote Jeffrey Saut, chief investment strategist at Raymond James, citing some of the statistics above. “Longer-term, we remain bullish, thinking the profit-cycle recovery is alive and well.”

For the best market insight, catch 'Fast Money' each night at 5pm ET on CNBC.

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Trader disclosure: On Apr 19, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Karabell Owns (GS), (C), (IBM), (FCX), (MON); Jon Najarian Owns (XLF) Put Spreads; Jon Najarian Owns (MS), Is Short (MS) Calls; Jon Najarian Owns (BAC), Is Short (BAC) Calls; Jon Najarian Owns (C), Is Short (C) Calls; Jon Najarian Owns (JPM), Is Short (JPM) Calls; Jon Najarian (CME), (CME) Puts; Jon Najarian Owns A Seat On CME; Jon Najarian Owns (MCO) Puts; Grasso Owns (DYN), (LPX), (ASTM), (ABK), (AAPL), (BAC), (BGP), (C), (CVGI), (COST), (JPM), (NEM), (PRST), (WMT), (PFE), (BA), (T); Seymour Owns (BAC), (AAPL), (BAC), (FXI), (MSFT), (MPEL); Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Pete Najarian Owns (C) Calls; Najarian Owns (YHOO) Calls; Finerman's Firm Is Short (IYR), (IJR), (MDY), (IWM); Finerman's Firm Is Long S&P Puts; Finerman Owns (AAPL); Finerman Owns (BAC), (BAC) Preferred; Finerman's Firm Owns (BAC), (BAC) Leaps; Finemran's Firm Owns (GLW); Finerman's Firm Owns (IBM); Finerman's Firm And Finerman Own (JPM); Finerman's Firm Owns (WFC) Preferred

For Tim Seymour
Seygem Asset Management Is Short (DB), (X), (VALE)
Karabell Owns (MON)

For Brian Kelly
Kanundrum Capital Owns (RAX)
Kanundrum Capital Owns (S)
Kanundrum Capital Owns (TLT)
Kanundrum Capital Owns (MORN)
Kanundrum Capital Owns (BX)
Kanundrum Capital Is Long U.S. Dollar
Kanundrum Capital Is Short (CME)
Kanundrum Capital Is Short Euro
Kanundrum Capital Is Short Yen
Kanundrum Capital Is Short Pound
Kanundrum Capital Is Short (XLV)

For Dennis Gartman
Funds Managed By Dennis Gartman Are Long Gold Futures
Funds Managed By Dennis Gartman Are Long Canadian Dollar And Australian Dollar

For Mike Khouw
Cantor Fitzgerald & Co. Is A Market Maker In (YHOO)

For Steve Grasso
Stuart Frankel And Its Partners Own (CUBA)
Stuart Frankel And Its Partners Own (GERN)
Stuart Frankel And Its Partners Own (HSPO)
Stuart Frankel And Its Partners Own (MERC)
Stuart Frankel And Its Partners Own (NWS.A)
Stuart Frankel And Its Partners Own (NXST)
Stuart Frankel And Its Partners Own (NYX)
Stuart Frankel And Its Partners Own (PDE)
Stuart Frankel And Its Partners Own (PFE)
Stuart Frankel And Its Partners Own (PRST)
Stuart Frankel And Its Partners Own (RDC)
Stuart Frankel And Its Partners Own (TLM)
Stuart Frankel And Its Partners Own (XRX)
Stuart Frankel And Its Partners Own (SDS)
Stuart Frankel And Its Partners Are Short (QQQQ)
Stuart Frankel And Its Partners Are Short (CL)
Stuart Frankel And Its Partners Are Short (AAPL)