The Corrections.

Posted by Sean Doyle, May 21, 2010

Image Courtesy of Farrar, Straus, & Giroux

From the April 26 intraday high of 11,258 the DJIA has sold down to an intraday low of about 9,900 on May 21 for a (one month) "correction" of about 10%. These types of downward moves are fairly common during a bull market and are considered entirely healthy. However, there is now much debate as to whether this is merely a correction or the start (or restart depending on one's viewpoint) of a bear market/and or global recession/depression.

Here is Captain Happy himself, Nouriel Roubini on CNBC this week calling for another 20% haircut in global equity indices. Just an aside....Doesn't it seem like whatever stage we are in within either a bull or bear market, Captain Happy always seems to call for another 20% drop?

Perhaps in an interesting contrast to Captain Happy's (perma) bearishness is the new found bullishness of John Paulson. Many remember Paulson as the housing uber-bear who made a quick billion dollars shorting the residential market with some (somewhat immoral) help from Goldman Sachs and the "Fabulous One."

Photo Courtesy of New York Magazine.

Paulson's bullishness has many in the investing community buzzing. "Long" John is calling for a V-shaped recovery and he laughs off the potential for a double-dip recession. According to Paulson, "House prices have stabilized and could climb 8% to 10% nationwide in 2011." Those are big numbers and could go a long way towards steadying the fragile Keynesian recovery we have constructed.

Graphic Provided by CNNMoney.com

With the DJIA down 8.37% for the past month and 11% (intraday) from it's YTD high, many long side investors are hoping (praying) for a Paulson-sized recovery. Especially now, with the mighty headwinds of a European collapse and a still stagnant U.S. job market pushing back on such lofty V-shaped dreams. The question remains...Is this merely a correction or the (very real) beginning of the end?

Photo Courtesy of EFE/Gustavo Cuevas

Or will The Bull get his revenge?