Starting with the most urgent issue: Goldman Sachs Group Inc. strategists are warning of near-term weakness in stocks because professional investors may have grown “unduly bullish.”

The bank said its Sentiment Indicator, which compares the equity positioning of institutional and levered accounts, stands at a maximum reading of 100, which it called “an extremely stretched level.” Readings above 90 suggest the Standard & Poor’s 500 Index has a high probability of falling about 3 percent during the following six weeks, according to Goldman strategists led by David Kostin.

While prospects for an interest rate increase from the Federal Reserve are part of Kostin’s rationale for forecasting a measly 2 percent advance in the S&P 500 to 2,100 this year, his counterpart Jonathan Golub at RBC Capital Markets is more optimistic. He predicts valuations, share buybacks and profit margins will all rise this year and help contribute to a 13 percent rally to 2,325. Bull markets falter when recessions ensue, Golub wrote, and the U.S. economy is not ticking off any of the boxes that would indicate a contraction is on the horizon.

David Fuller's view

I think David Kostin of Goldman Sachs, mentioned above, has the most revealing short-term comments in this article above.  Wall Street was short-term overbought and susceptible to a reaction and consolidation of gains, as I have mentioned in Audios since Tuesday 30^th December.  Here also is my concluding paragraph in response to the lead article posted on Wednesday 31^st December:

Currently, the bulls are still in charge, and likely to remain so during at least the first half of 2015.  Conditions may be choppy, starting with a reaction and consolidation which commenced on Tuesday and is likely to carry on into January.  However, this will be an opportunity rather than a problem, provided it remains within the S&P 500 Index’s uptrend, meaning that it does not break the 200-day MA for more than a brief period of a week or two.  

Now that at least a short-term reaction is clearly underway, we will need to see where it finds support.  Investors have been conditioned to buy the dips, and to state the obvious, this will work until it does not.  At that point, we are very likely to see a far bigger shakeout.  Confidence will be eroded somewhat if we see the December low just above 1970 taken out, although this happened in October when the August low was breached.  However, another lower low would be a further inconsistency for the S&P 500 Index.  Moreover the pattern since last July would look more like a trading range, albeit still with higher highs, rather than the consistent staircase uptrend dating back to 2012.  Therefore I would not assume that the S&P could bounce back as strongly as we saw following the October low, should it clearly break last month’s low during this correction.  

Investment commentators within the Western financial media keep mentioning that investors are concerned over the weak price of crude oil (weekly & daily).  Really?  They may find it unsettling, as no one was talking about it during the first half of 2014.  Nevertheless, predominantly oil producing countries aside, lower prices for what is still the world’s most important commodity is a net bullish factor for GDP growth and consumers.  However, there will inevitably be some turmoil for energy producers.  

I am more concerned about margin debt (leverage) on Wall Street, which I mentioned several times in 4Q 2014.  It is a lead indicator of imprecise timing, but more than capable of triggering a major selloff when confidence wanes.  I am dismayed that Ben Bernanke and Janet Yellen have appeared to ignore margin debt.  The classic response used to be and still should be to lower gradually the amount of leverage permitted as the overall debt used rises.           

Needless to say, US interest rates will stay low if / when high margin debt eventually triggers a bigger stock market selloff than we have seen to date in this bull market since 2009.