Correction or errection?

So, are we finally going to get the correction that everyone including my grandmother has been holding their breath turning blue for, or are the bears going to get the football yanked away yet again a la Charlie Brown? The obsession about when this market is going to correct reminds me very much of the summer of 2009. Eventually we did get a significant correction of about 8% but that was only after the market had gone up 40% from the March 2009 bottom,  far exceeding the levels when the calls for a correction first started. I'd say it's been since around mid January whereby many people were expecting a correction and here we are comfortably higher from that point. If you look back the past few years to see when major corrections occurred you saw a 2 things happen just prior to them:

1) gov't bond yields had risen significantly for several weeks
2) retail investors had been getting back in the market again (but by no means were they ever exuberant given all the money they pulled out in 2008)

Anything less and we only would see minor dips.

So far we have seen govt bond yields rise for a few weeks but yields have just started to turn up from very low levels. The 10 year is still sub 2.5% which is still quite stimulative for the economy and is non-competitive with equities.

Retail has either not come back or only is just gingerly coming back.  ICI reports that equity fund inflows in the US have been negative YTD. Lipper US funds flows however shows that there has been a modest inflow into equity funds so far YTD. I'm not sure who's more accurate but according to either source, retail had shown far more exuberance early last year and in early 2010 when the market was building a top prior to the major summer corrections that occurred.

So, based upon what I see, if we do get a correction it should be fairly contained at this point. The fact that I too am correction watching like everyone else supports this notion. And don't forget there's tons of bear bag holders who haven't capitulated which further suggests downside should be limited. I still have 50% in cash that I have not deployed. This allows me to be a strong holder of my positions should a correction occur, even if there's one bigger than I expect. The positions I hold are all microcaps which give me quite a bit of leverage. I'll be willing to add more exposure if I get the sense that the dust has settled. If this is just yet another small dip and the markets resume upward to new highs next week that's fine by me too. However if that happens we're going to get closer to the point where a bigger correction actually occurs and then I'd be more inclined to actually hedge my positions rather than keep a cash reserve.

Despite everything I've been saying lately, anytime the market has just I little dip I can't help but feel scared and start sweating a bit and that to me is a long term bullish sign. Although you must have a certain degree of conviction when taking a position in the market, if you're not sweating a bit, it's not a good sign. The moment you think a trade is a "no brainer" watch out!