Gene Marcial's Inside Wall StreetSo is this, finally, the beginning of the Big One -- the major market reversal that the bears have been pining for? Predictably, the bears' growling has grown much louder as investors continue to doubt the $1 trillion bailout package that the European Union has put up to save the euro, Greece and other European weaklings from financial disaster.

Stocks got hammered at the end of last week as fears spread that the rescue plan would result in budget cutbacks that would slash spending in Greece, Portugal and Spain, and ultimately hurt the global economic recovery. On Friday, May 14, the Dow Jones industrial average dropped 162.79 points, or 1.51%, to 10,620.16, on top of a decline of 113.69 points, or 1%, the previous day. The Standard & Poor's 500-stock index suffered as dismal a fate, dropping 21.75 points, or 1.88%, to 1,135.68, after Thursday's fall-off of 14.23 points, or 1.21%, to 1,157.44.

Little wonder the big bears are convinced the Dow will tumble a lot more, to the 9,500 level -- or lower -- on the belief that what's bedeviling Europe will worsen and seriously stymie a global rebound. The forces of optimism, however, believe the market's pullback, daunting as it was, is just an interruption and that the bull is alive and kicking.

Of course, the bears and the bulls look at the same trading data and stock charts that trace the market's volatile behavior and come out with diametrically opposed views and judgments about what's happening. But this time, will the bears be vindicated? Is the bull market completely knocked out?

A Derailed Recovery?

Joseph Battipaglia, investment strategist at investment firm Stifel Nicolaus, has left the bullish camp and now says the problems in Europe and with the euro will spread and could weaken corporate profits in America. The outlook for the U.S. economy is muted, he says, and the current data no longer are convincing him that the recovery is on track. His forecast: The Dow will trade within a range of 9,000 and 11,000.

Another market skeptic, Gregory MacArthur, a long-time Wall Street pro who's now president of consulting firm Viewpoint 2000, says the market has started to actively respond to negative news, such as the falling euro and the financial turmoil in Greece -- even though it just about ignored those issues two weeks ago. The market's weakness, he adds, is now being reflected in slumps among some stalwart stocks, such as Apple (AAPL), Google (GOOG) and Cisco Systems (CSCO). He expects such stocks to be vulnerable to more profit-taking over the coming months.

However, if you believe the bears' current forecast, be careful. That's because the bulls who analyze the technical behavior of the markets, have some solid counterarguments on their side.

"It Would Be a Mistake to Be a Seller"

One of the most important indicators, says Bernie Schaeffer, chairman and CEO of Schaeffer's Investment Research, is the S&P's support level of 1,100. That has been an important factor in the past decade, he notes. Should the S&P drop below 1,100, that index would be in big trouble, he warns.

"But we don't think the market will sink below that important support zone, and so we are confident the bull cycle is intact," says Schaeffer. "It would be a mistake to be a seller in this market now," he says. Schaeffer advises investors who aren't yet much invested to start buying now. For those already fully invested, he suggests that they should stay and ride out the current volatility.

"The bull market cycle isn't over and should see more life from here on," notes Schaeffer. A lot of money is still on the sidelines, just waiting for an opening to get into the market, he says. As an example, mutual funds aren't yet in the market in a manner that they should be, according to Schaeffer. The fact that such large investment groups aren't fully invested is one important reason to think that the bull market isn't down and out.

A Sign from the Small Caps

Schaeffer forecasts the S&P 500 hitting at least 1,332 by yearend. Why 1,332? The number is twice the S&P's intraday low of 666 in December of 2008, notes Schaeffer. In past market downturns, the strength of the rebound is within that range, he points out. That level is still way below the S&P's all-time high of 1550 reached in October 2007. Despite the plenitude of pessimism these days, a lot of data indicate the market hasn't peaked, he argues.

One source of hope, says Schaeffer, is the small-cap sector, which continues to outperform the large caps this year. The Russell 2000, comprising largely small-cap stocks, has consistently outpaced the broader market indexes, says Schaeffer. When the big caps start to pick up steam again, the bull market argument should gain renewed respect and, therefore, stimulate forceful buying.

Ed Yardeni, president and chief investment strategist at Yardeni Research, also believes the worldwide rebound isn't likely to go bust. "I expect the global boom will trump the forces of darkness that are widely expected to derail it," he says. "The forces of light are led by the awesome rebound in corporate profits, especially in the U.S.," he adds. "It's hard to attribute the extraordinary profit recovery solely to cost-cutting."

There's evidence that U.S. companies are doing more business overseas in the fastest-growing economies in the world, notes Yardeni. "We have been especially impressed by the vertical ascent of the S&P 500's forward earnings over the past weeks during the latest earnings season," he says.

A 20% Market Rise from Here?

Another contributor to the global boom is productivity. "It is growing rapidly into record-high territory in the U.S., and it must be doing the same in many other countries," says Yardeni. This is significant because productivity "is the one and only variable that determines the real incomes of workers, and therefore, their purchasing power and their standard of living," he explains.

If the global boom prevails, "the market could rise another 20% by the end of the year," Yarden figures.

Given last week's market decline, lots of investors are deeply anxious that the show is over for the bulls. I wouldn't bet on it.

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