Has The Correction Started?

In this past weekend's newsletter I stated:  "There it is. I am calling it. The long awaited correction is coming during the month of March."   Today, at least as of the time of this posting, the S&P 500 is having its biggest one day correction of 2012.   While that sounds a lot more dramatic than it really is - the question is whether this is the beginning of a bigger correction or just a much needed breather to allow us to add further exposure to portfolios more safely.

The market has been signaling extreme overbought conditions (on a weekly basis) for the last few weeks which is why we have rang a cautionary tone in our weekly missive about chasing the rally.  However, with that said, we have also been very clear that we are currently within a bullish trend in the market which dictates adding exposure to risk assets (equities) in portfolios on pullbacks to support.

Therefore, the obvious question is where do we now start looking to rebalance portfolios and increase exposure to equities for the time being.  While we look at weekly charts to strip out the day to day volatility of the markets when looking for interim pullbacks during bullish trends - daily charts are more applicable.

The second chart is the S&P 500 versus the 50 day moving average (dma).  During bullish (rising) trends pullbacks to the 50 dma are extremely common.  In the chart I have notated ...