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Excerpt from Raymond James strategist Jeffrey Saut's latest essay (published Monday, March 7th):

...Wall Street’s attention has again been captured by names like Apple (AAPL), Netflix (NFLX), Baidu (BIDU), First Solar (FSLR), etc., which were streaking higher while many other stocks were being distributed beneath the headline excitement of the darlings du jour. Indeed, since the first of the year I have felt like I was in the trading “twilight zone” as the major indices danced higher, despite the numerous cautionary signals often mentioned in these missives.

Yet the “dance” continued, that is-- until the past few weeks. Clearly, the last two weeks have felt like a change in the market’s tone punctuated by February 22nd’s 90% Downside Day (90% of total points lost and volume occurred on the downside) with a near 90% Downside Day last Tuesday (-168 DJIA). It was the second official 90% Downside Day of the year accompanied by the two nearly Downside Days of 3/1/11 and 1/28/11. Counter-balancing Tuesday’s near Downside Day was last Thursday’s nearly 90% Upside day, but alas, that was erased by Friday’s Fade of 88 points (DJIA). Accordingly, I continue to think we are at / near a “tipping point,” As highlighted by the always insightful GaveKal organization:

“Now if the US$ bounces from here, it is likely that oil will follow food prices into their recent consolidation, allowing for equities to once again bounce back. However, if the US$ melts down, or if oil shoots up on further Middle-East unrest, then it is hard to see how equities will maintain the past few months' uptrend. So it does seem that we are at an important tipping point not just for the US$, but for most asset prices as well, which should not come as such a surprise since most assets in the world are priced off of the US$. (That) reality brings us back to a point Charles has been very vocal about over the past couple of months: we are rapidly reaching the stage in the cycle where the Fed needs to start tackling the weakness of the US$, and the surge in commodities, or risk undermining the very (economic) recovery it managed to jump-start. With that in mind, we would not be surprised if, in the coming days and weeks, various Fed directors come out to sound somewhat more hawkish in a bid to prevent commodities from further undermining the current recovery. ... Anyway, with so many unanswered questions, it is not surprising that equity markets are taking a breather.”

From GaveKal’s lips to God’s ears, because late last week Fed Governor Thomas Hoenig suggested just that when he opined that short-term interest rates should be higher.

To be sure, the stock market’s changed tone over the past few weeks has been palpable, raising the question – does the recent sell-off, from S&P 500 (SPX/1321.15) 1344 to 1294, represent the sum total of the long anticipated correction? To answer said question we turn to the excellent Lowry’s service:

“Perhaps a better question to ask is, did market conditions prior to the recent rebound suggest adequate preparation for a renewed and sustainable rally? An examination of Lowry’s measures of the forces of Supply and Demand suggests the answer to both questions is likely no. . . . Strong rallies that experience weak and short-lived corrections are typically characterized by expanding Demand and contracting Supply. However, that has not been the recent pattern. . . . The market deals, however, in probabilities, not certainties. Thus, while conditions over the last few weeks were such that the probabilities suggested a correction longer than 3 days, investors should still be alert for signs a new, sustained rally has begun. The key element for any renewed rally is likely a pattern of strong, sustained Demand. Probably the clearest indication of this strong buying would be provided by two or more 90% Up Days, or a combination of a 90% Up Day and back to back 80% Up Days. The near-90% Up Day on Feb. 25 proved a 1-day wonder, so evidence of more sustained buying will likely be needed to indicate the start of a new rally.”

Indeed, cautious, but not bearish.

The call for this week: This week I am celebrating the two-year anniversary of the stock market’s bottom by attending our institutional conference where more than 300 companies will be presenting to nearly 600 portfolio managers. It’s a great conference, as well as an appropriate time to reflect on the past 24 months. Recall, the bottoming process began on October 10, 2008 when 93% of the stocks traded on the NYSE recorded new annual low prices. It was then I declared, “The bottoming process has begun.” However, some five months later, on March 2, 2009, I stated, “The stock market bottoming process is complete and we are – all in!” Since then I have not really “backed up” on that call, although I have turned cautious at times. My best cautionary call was in late March 2009. My worst has been coming into this year for while my short-term caution on the emerging markets proved correct (long-term I remain very bullish), my caution on the U.S. markets has been wrong-footed, at least up until the last few weeks.

Source: Saut: Was the Recent Sell-Off the Long Anticipated Correction?