Nearing an Official Correction

For all of those people that claimed that the stock market was over-valued and increasing based on improper measurse -- the past few weeks may have proven them correct -- or correction I should say.

10% corrections are a common identifying point for traders and the current market hovers around that level now. After Tuesday's late sell off, investors and traders are left wondering if this "correction" will continue into a full-fledged bear market (meaning a decline of 20%+) or if it will be a buying opportunity to jump into fundamentally sound businesses that aren't exposed to international/European concerns and whose balance sheets are cash rich for such tough times.

Then again, the calls of correction have not come due to typical bear arguments that valuations are overdone, that the consumer is too restrained or that the economy is weak. Recent data has shown the emergence of a stabilized (but tightened historically) consumer and continued economic growth. Is that the result of so much liquidity in the system as opposed to fundamental growth? Will that influence peter out in the 2nd half of 2010? Will that influence cause inflation and a debasing of currency in 2011?

Maybe/maybe not. But the real reason for the decline right now is the Eurozone sovereign debt issues - and while the recent Euro version of TARP appears to have safeguarded the system - investors are skeptical. Afterall, the loyalties of the Euro Union aren't as intertwined as that of Alabama and California. And will these Euro countries really accept tighter fiscal constraints? I might riot too if my retirement age just got raised from 52 to 67?!!

In sum --- the fear is that government support, the last resort, may not succeed. And the consequence of your last resort failing is scary and may bankrupt the little optimism people have developed in the past year.

Looking for technical signs?? 1125 and 1132 are big barriers to going lower; after those two spots, 1100 would be a crucial stop.