Correction

Charts: The market has gone from rally to correction. This is the first correction of 2012. There is no way to know if this correction will force the market down a mere 3-5% or if it will morph into a full-fledged bear.

In previous blogs I have said a brand new bull market was born in October 2011. For a while the charts were saying a new bull market had emerged. A few weeks ago the charts started signaling a different message. The downturn in 2011 was a correction, not a bear market. The current bull market is 3 years old. It is prone to 17-20%corrections. There have been two that big so far.

It is also prone to powerful rallies in paper thin volume. The most recent rally was like that. And this is one of the technical indicators that tells us we are in the same old bull market. Others include large caps outperforming small caps and identical leadership before and after the 2011 downturn. Example: Apple and Priceline.

The most important technical indicator right now is Spanish bond yields.

Fundamentals: Bond vigilantes are tearing into Spain, recreating the same problems we faced with Greece. America's latest jobs report was horrible. Economic data from China is mixed. The root of all these problems is high oil prices. We could see central banks here and everywhere loosening monetary policy to juice the world economy. This might jolt stocks upward but it would also put upward pressure on oil prices if there isn't a Long War breakthrough with Iran. This might not lead to generalized inflation. It might not even be that great for oil companies if consumption goes down.

Long War: Al Qaeda is winning in Yemen. The Yemeni Army is by and large losing when it enters battle with Al Qaeda. America is stepping up its efforts there and seems to be making brutal leadership changes inside the Yemeni government. Despite the bad news the fact that the US is apparently able to sack Yemeni leaders is encouraging. Drone strikes are increasing and will eventually start hurting the bad guys. Still, I get the Willies when the bad guys have higher kill ratios than the good guys.

The government of Mali was overthrown recently. AQIM (Al Qaeda North Africa) is a major player in the new Mali and has already grabbed several villages for itself and its affiliates. France is sending Special Forces there. The African Union is in the early stages of mobilizing against the new Mali. Bear in mind the AU Army has pretty much defeated Al-Shabab in Somalia and Al-Shabab was very tough, equal to AQIM. It is possible the new Mali won't want to screw with the AU and will break ranks with AQIM.

Sudan and South Sudan are on the verge of full-fledged war, although peace talks are ongoing and total war has not yet broken out. At one point Sudan leader Bashir worked with the CIA and it probably has some hooks in him.

The big LW battlefield is Syria. If Assad is overthrown it would mean Iran's overseas military empire is doomed, this would break Iran's power to jack oil prices, which is everything to us. There is supposed to be a UN mandated ceasefire in a few days. The US says the rebels will be armed if Assad breaks the ceasefire. This would mark the start of a whole new war and obviously the good guys have to win.

I'm sure you've noticed that every one of these hotspots has no chance of ever seeing USMC boots on the ground. They are all owned 100% by the CIA. Is Langley overstretched?

In a previous blog I mentioned that the CIA and NSA are obligated by the Camp David Accord to monitor and react to all militant activity in Egypt's Sinai peninsula. Entrenched jihadist militias are now routinely launching rockets from Sinai into Israel. Oil pipelines leading from Egypt into Israel have been bombed 48 times. So Langley has abandoned an old (but very important) outpost. Obviously then it is overstretched.

But then CIA Director Petraeus is the greatest military mind since George Patton.