On "Fast Money," he said that his year-end target for the S&P was 1,450 but added that his firm's chief technician saw signs that it could close out 2012 around the 1,500 to 1,550 level.
"The feeling is, basically, that maybe we continue with this digestion of the 15 percent advance we saw off the June 1 bottom," he said. "We look to come down maybe 5 to 6½ percent, and then once we get the uncertainty of the election lifted, if we do start to hear about some movement in the lame duck toward resolving or at least delaying the sequestration, etc., we could end up with a nice Santa Claus rally."
(Read More: Terranova's Not Buying Into 'Election Correction')
As for the "fiscal cliff," which would see expiration of the Bush tax cuts and trigger automatic federal spending cuts, Stovall thought that it deadline could come and go, with a resolution coming after the fact.
"I think that we go back into recession if we end up getting dashed on the rocks and we are within this 'fiscal cliff' environment for all of 2013," he said.
(Read More: S&P Could Still Hit 1,600 Year-End: Bannister)
"I think there's a very good possibility that we do end up falling off the cliff on Dec. 31, but we end up seeing some resolution in the first quarter that then gets backdated to the end of the year. I don't think that really saves the stock market. I think, in that case, we do through a deeper pullback into correction mode, but there is a possibility, like in 2010, after the midterm elections, that Congress actually wakes up, starts thinking logically again and does something positive."
Stovall offered a way to play the "fiscal cliff."
"Two areas that I would suggest: there's an old saying that when the going gets tough, the tough go eating, smoking and drinking. And if they overdo it, go to the doctor – so your traditional consumer staples, health care," he said.
He also recommended the S&P Low Volatility Index — "nice dividend yield so you're in the market, but you are riding the merry-go-round rather than the rollercoaster," he added.
Trader disclosure: On Oct. 24, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC's "Fast Money" were owned by the "Fast Money" traders: Steve Weiss is long BAC; Steve Weiss is long QCOM; Steve Weiss is long C; Mike Murphy is long AAPL PUTS; Mike Murphy is long WFC; Mike Murphy is long TGT; Mike Murphy is short FB PUTS; Joe Terranova is long VRTS; Joe Terranova is long SBUX; Joe Terranova is long SWN; Joe Terranova is long TRV; Joe Terranova is long VZ; Joe Terranova is long XOM; Joe Terranova is long CVX; Joe Terranova is long GS; Joe Terranova is long GLW;
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