Hard to See the Case for a Major Drop

There's a perception brewing that says that even if everything is terrific, we don't belong in the 9000s. That idea was very evident this morning.

I have trouble with the perception. I admit that the move has been pretty parabolic, that is, if you can modify the word "parabolic," and I don't like parabolic moves. But I do like nailing them, and I could say "sell sell sell" right now and be well ahead of the game. I think the selloff will be contained.

To me the issue is, as this selloff proceeds, where should we be? Dow 8500? SPX 900? For those answers, I like to think, "Where are the companies relative to where they were year over year?" And, more important, "where will they be three months from now?," especially given that when we had such a strong move in July, and that has foretold major advances, as I documented last week when I said on "Squawk on the Street" that we should expect a shallow correction. Not everything is bad -- in fact, much is darned good.

Take retail. I spent the weekend reading the conference calls of every single major retailer, in part because of what I now regard as the urban myth of the obliterated back-to-school season.

I come back scratching my head. There will be a back-to-school season, but it will be down from last year's season, which was slightly inflated by stimulus checks. (It's amazing how well received that program was and how illegitimate Cash for Clunkers seems to be, even as it is easy to see how many people will be put back to work by Cash for Clunkers and very difficult to discern what the stimulus checks did beyond causing a momentary blip in retail sales.)

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