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There’s a concept I’ve been thinking about lately that completely reframes how we should view market corrections — and honestly, it might change how you react the next time we see a sharp pullback like we did Friday.
Most traders treat pullbacks as bearish events, but I see them as something entirely different: a leverage cleanse that actually makes bull markets more sustainable.
Think of it like a one-day fast for the market. You’re not starving — you’re clearing out the excesses that could cause bigger problems down the road.
Here’s what I mean by that…
How Leverage Builds Up and Why It’s Dangerous
When markets keep grinding higher without any meaningful corrections, rational behavior starts giving way to something more reckless. I know most people reading this are disciplined traders, but there’s a whole class of market participants who aren’t.
They start thinking the market won’t go down, so they lever up. Funds chasing performance because they missed a big move in April or earlier in the year start taking oversized leverage bets to catch up.
That’s when things get frothy.
And that froth? That’s exactly what corrections shake out. These pullbacks work like a cleanse — they shrug off the leverage in the system and get rid of the speculative excess before it becomes a real problem.
Look, I’d rather see the market pull back 3-5% now and reset positioning than watch leverage pile up until we get a 1999-2000 situation. Back then, tech stock valuations weren’t ridiculously priced until the very end — then they went parabolic right before the crash.
That’s what happens when leverage never gets cleared out.
Why Current Sentiment Has Me Concerned
Right now, surveys show 75-80% of respondents expect the S&P 500 to hit 7,000 by year-end, which would require a 20% annual gain for the third consecutive year. That kind of consensus bullishness combined with elevated positioning is precisely the environment where a healthy correction becomes necessary.
When everyone is bullish and there’s leverage in the system, things get a little frothy. That’s not me being bearish — it’s me recognizing that markets need to breathe.
The beauty of periodic corrections is they prevent the kind of leverage buildup that leads to real crashes. They’re not bearish signals — they’re maintenance. They’re the market’s way of staying healthy for the next leg higher.
So the next time we see a sharp pullback, don’t panic. Recognize it for what it is: a leverage cleanse that’s making the bull market more sustainable.
That’s how you stay positioned for the long game instead of getting shaken out by normal volatility.
I’ll see you in the markets.
Chris Pulver
Chris Pulver Trading
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