The purpose of the market is to make fools of as many men as possible.

What a February it's been so far.  Bubbles popping galore. Crypto bubble pop, weed bubble pop, short VIX bubble pop and perhaps ETF bubble pop. Markets have taken quite the dive and we got the fabled 10% correction that so many have been calling for since the summer. While there is certainly concern out there, I don't get the sense of doom like in previous corrections and that's a big problem. The message that seems to be out there is "relax it's just a correction the economy is fine". Sorry, but that's not what long term bottoms look like. "Now is a time to hunt for bargains"says Cramer. Not what long term bottoms look like. Fed chief Dudly calling the drop "small potatoes". Not what a long term bottom looks like. Trump calling the drop "a big mistake". Not what a long term bottom looks like. That's what you call complacency. What you need is fear.

Throughout this bull run that began in 2009 there was usually a wall of worry for it to climb upon. There was always some concern, some issue that kept people from fully embracing the market and that wall of worry is what a healthy bull market needs to climb upon because concerns/worries  keep expectations low and as they get resolved the markets adjust by moving higher. Coming into the new year that wall was crumbling as the prevailing consensus was that it was blue skies ahead as the global economy was experiencing synchronized growth. Near the most recent peak, the market got extremely overbought on multiple time frames, sentiment as per AAII and other measures were at extremes and there was a surge in fund flows. So, has this 10% correction cleared out these extremes? Not so, at least not yet. There has been a pullback in bullishensss and there was a decent outflow last week, but I don't think that's enough. If we are to assume that the bull market is still in tact, before it's ready to resume its upward march on a sustainable basis I expect to see the opposite of what we saw at the peak. I expect to see bears outnumber bulls 2:1, major outflows and the permabears coming out of the woodwork claiming that the bull market is dead. Notice that the permabears have been fairly quiet. Where is Roubini? Where is Prechter? Pretty quiet  now after having their asses handed to them for 9 years calling a crash at every turn.

The other question I ask myself is "did we see actually see the bull market peak"?  Not all the signs were there but some were. Most bullish strategists seem  to think ""there's no inverted yield curve and so not to worry about a recession and therefore major decline in the market". As the motto of this blog goes, the purpose of the market is to make fools of as many men as possible. Once there is a consensus about something there will come a point where too many people are positioned the same way and eventually Mr. Market pulls the rug from underneath their feet. Major declines always catch the majority by surprise. So maybe we don't get a recession but we do get a major decline anyways like in 1987. Or we do get a recession and a major decline? Either of these scenarios would catch the herd by surprise.

In the short term the market is oversold enough to have a rebound but I would be very careful in assuming that it's anything but a dead cat bounce  until we have seen the extremes that marked the top get completely reversed. I don't know how long that could take. When you start seeing headlines saying "the bull market is dead" and people are fleeing from stocks that's when you'll know a real bottom is close.