Happy hump-day, fellow traders. No real surprises today. The market was already starting to feel the weight of the overheated runup it's been through over the past three weeks or so, and the inevitable second-thoughts have finally started to surface. And yes, we suspect things are going to get a little more bearish from here. As for whether or not things get a lot bearish, well, that will depend on some other things falling into place. Advertisement Will this event trigger the next Great Depression? The Florida-based economist who predicted nearly every major financial event of the last thirty years now warns that we are sitting on the precipice of the greatest financial crisis in history. To see his detailed analysis, click here. Advertisement Let's be honest.... we all knew this was coming. Being equally honest though, we all know a pullback from here isn't going to be devastating. Realistically, a mere pullback to the 1900-ish area could be all we need to see to hit the market's proverbial reset button. The 1900 area was a key ceiling in April and May, and big round numbers tend to be huge psychological lines in the sand anyway. Additionally, the 50-day moving average line (which was the springboard for the big rally beginning in mid-May) is going to be near the 1900 mark pretty soon, as in by the time a pullback could get there. Here's the thing - a slide back to the 1900 mark would only be a 2.8% pullback for the S&P 500. Yeah, a lot of people are freaking out here even though the first stop of a likely pullback isn't a very big deal. Heck, we don't have to look too far back in history to be reminded how 2.8% moves in a day were semi-normal. And what if things finally get a little harrier with any correction this time around? A full-blown 10% correction from the high 1955.55 hit on Monday would drag the S&P 500 all the way down to 1760. That's below the 200-day moving average line, and well below any recent lows we've seen. While technically speaking it would be a garden variety dip, you know as well as I do if we end up taking on that much water, most traders are absolutely going to lose their minds. (Yes, we've become spoiled to small stumbles and persistent bullishness.) My guess is, whatever pullback is in the cards will be better than the worst-case scenario of a 10% correction, but worse than the best-case scenario for a 2.8% dip. There's a ton of potential support between 1800 and 1900, any and all of which could halt the avalanche. The 1860 area looks like a particularly string support level, where the 100-day average line and the lower 20-day Bollinger band have converged. In fact, that's my mental working target until further notice. Of course, the "where" discussion is somewhat moot if my "either/or" assessment is wrong and we're not headed for a bigger dip than we've seen in a while. Do I really believe the bears are going to take over in a meaningful way for a few weeks? Yes, I do, for a handful of reasons. In no particular order... 1. Did you know the S&P 500 has now rallied for 32 straight months without a correction of 10% or more? On average the market only remains in a bull trend for 18 months before suffering a full-blown correction of 10% or greater. Point being, we're more than pushing the envelope here. Honestly though, even if stocks weren't overdue for a technical break we could reasonably surmise one was in the offing based on how overextended the market is. 2. It's kind of an obscure methodology, though I've seen and used it before. What's that? Measuring the distance between where the major indices are in comparison to where the key 200-day moving average line (green) is. As of its peak on Monday the S&P 500 was 8.1% above the 200-day line. We've seen slightly more disparity from time to time in recent history, but it's rarely lasted. Most of the time it's reeled in and the S&P 500 returns to the mean. Take March 7th for instance. The S&P 500 was 8.4% above the 200-day moving average line then, and the next three months were flat as the long-term indicator line played catch-up. To be fair, however, the S&P 500 got as much as 12% beyond the 200-day average in May as well as in August of last year, so we're hardly going to place all our predictive eggs in this one basket. Any differential greater than 8.0% is still cause for pause though. 3. Perhaps the most alarming aspect of this rally is one we've touched on before, but haven't put on the table in no uncertain terms - optimism/confidence has reached crazy levels. Yes, this includes the VIX we discuss from time to time, though the VIX is something of a flawed measure of investor sentiment right now even if it's eerily low (suggesting bullishness is at multi-year highs). There are a bunch of ways to gauge investors' moods, however. One of my favorites is the Investors Intelligence poll of bullish and bearish opinions, the bullish side of which just happened to reach multi-year highs of 62.2 last week. In fact, the last time investors were any more bullish was in October of 2007. If the date rings a bell, it may be because it was just before the beginning of the subprime meltdown and the accompanying market crash. No, I'm not saying we're headed into a recession. I'm not even saying we're destined for a bear market in the latter half of 2014. What I am saying, however, is that investors have a tendency to be the most bullish at the worst possible time... after the rally has burned up all the fuel in the tank. As you can see on the chart of the Investors Intelligence data [you may have to cross reference some dates], most of the peaks in the II bullishness figure materialize right before semi-major tops, or at least right before stagnant periods. Rocky White posted the data-crunching over at Forbes. Were it just one of these three red flags waving, I could probably ignore it. When so many things line up though (including crazy valuations), and when normal timeframes get this far out of whack, more often that not it pays to be a contrarian. That's admittedly not the scientist side of me talking to you - it's the rarely-seen touchy-feely side of me... the one with all the graying hair that's been around this block and seen things play out in unexpected ways more times than he cares to remember. He's right more often than not too, however. As for what both sides of me are watching now, it's a combination of the VIX and volume. If the VIX manages to push above its 20-day moving average line an then punches through its upper band line around 13.0 IN A SUSTIALBE TREND, stocks are then toast. Likewise, if we finally start to see volume rising on the way down (the one thing missing with the uptrend so far), it's another reason to expect more than just a bump in the road. Sorry for the long-winded rant today. It had to be done though. I know watching stocks here is like watching paint dry, but I'm telling you, it's times like these when we need to pay the most attention to the subtle clues and easy-to-overlook realities. Anyway, a couple of real quick notes on the stock front... I thought Bryan Murphy made a great point about Orexigen (OREX) today, and one of our trades - Cloud Peak Energy (CLD) had a solid day and is now within reach of a serious catalytic level. If the name Orexigen rings a bell with you, it might be because its weight loss drug Contrave suffered a calendar setback on Wednesday. The FDA was supposed to either approve or reject the drug today, but instead delayed a decision until September so it could discuss with the company some post-approval studies that needed to be done. Shareholders didn't like the news, and the stock tanked 16%. Murphy says it's a mistake, and makes a pretty good case why. And Cloud Peak Energy? It followed through on the V-shaped reversal is started a couple of weeks ago with a 2.5% pop today. The close of $19.42 was the highest close in a while, and pushed CLD within reach of the 100-day moving average line (gray). I've got a sneaking suspicion one more decent day and move beyond the 100-day average at $19.48 could start a move like we saw in March. That's all we've got for today, but I'm quite sure things are going to be real interesting - and probably not in a good way - the rest of the week. Stay tuned.