By John P. Hussman

Three weeks ago, I noted that market conditions were "characterized by overvaluation, overbought conditions, overbullish sentiment, and upward pressures on yields - a situation that has historically been associated with a moderate continuation of upward stock market progress and a tendency to make successive but very marginal new highs, typically followed by abrupt and often severe market losses within a time window of about 10-12 weeks. As usual, that's not a forecast - just a regularity. But it's a harsh enough regularity to turn our knuckles white here, given the depressed and complacent level of the CBOE volatility index (VIX) and the little-observed upward pop in credit default spreads last week."

While the intervening three weeks have seen the market retrace most of its upside progress since last August, the decline is still somewhat shallow relative to previous instances when that "overvalued, overbought, overbullish, yields rising" conformation was cleared.

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