Tuesday officially was the U.S. markets’ worst day of 2012, with the average stock sinking 1.5%. But hey, it’s a small price to pay after an unfettered 17.7% run-up. More important, now that the inevitable blip is out of the way, we can get back to the bullish tear we’ve been on, right?

Not so fast, partner.

Yes, we were overdue for something of a stumble, but the bears haven’t exactly closed shop yet. Indeed, now that the market’s vulnerability is exposed, we might see previously committed bulls choosing to take profits while they can be locked down. Hear me out.

The Magic Number

Sorry, but what happened Tuesday doesn’t bleed off all the overbought pressure that’s been in place since mid-February. The reality is, we’ve only begun to pay the piper.

I know that’s an unpopular outlook. We’ve all gotten used to the idea of stocks making big progress almost every day, and now that the party looks like it’s winding down, we’re taking it personally. Someone (like myself) who’s even considering playing the “It’ll get worse before it gets better” card is potentially setting himself up as a villain. I say please don’t shoot the messenger.

The fact is, even measured from the peak price of 1,378.04 last Wednesday, Tuesday’s close of 1,343.36 still is just a 2.5% drawdown — significantly shy of the typical pullback we see during normal bulls runs. While there certainly are occasional exceptions, by and large a normal — even healthy — short-term dip in the midst of a bull run can and usually does measure somewhere between 4% and 7%. The average so-called “blip” is on the order of 5.5%.

I quantified the idea based on historical data, and I know that makes me a little crazy. But my psychosis is your gain.

Not to Be Confused With Its Close Cousin, ‘Correction’

Click to Enlarge To be clear, I’m not talking about what would constitute a full-blown “correction.” Those are more significant selloffs that almost seem like they could be the beginning of bear markets following months of clear bullish progress. True corrections can last for a few weeks and drag the market lower anywhere from 9% to 20%, with the typical pullback of this ilk putting a 14% kibosh on stocks.

I don’t think that’s what we’ve started this week. I think what we’re seeing now is a garden-variety blip, which should be just enough for the market to re-command some respect/awe without sending traders heading for the hills.

We haven’t quite gotten to that point, though.

So where, pray tell, will the S&P 500 need to fall to before it humbles investors without spooking them? I’m so glad you asked.

It Ain’t No Coincidence

It’s kind of funny — though not surprising to me anymore — how the market’s indices seem to know where their limits are, and what their tendencies are with respect to rallies and dips.

Take the S&P 500 for instance. Previously, I told you the normal short-term slip-up within a bull market usually ranges from 4% to 7% from the peak high. Assuming we’re going to see the usual this time around following the peak price of 1,378.04 last week, that means the index is slated for a tumble to somewhere between 1,323 on the high end and 1,281.5 on the low end.

Care to guess what’s waiting right around each of those respective levels? Two key moving averages. The 50-day moving average line currently is valued at 1,321.35, while the 100-day moving average line is at 1,276.5. Both are rising every day, too, and should be at the high and low end of a target range within a couple of days (which is the first opportunity they’ll get to be tested).

I’m not saying one or the other has to be the ultimate floor here. In fact, I’ve got a feeling the actual short-term bottom will be somewhere in between. I’m just saying there’s a whole lot of organic support all around where history says the SPX is apt to hit a bottom.

Bottom Line

I’m always prepared for any and all contingencies, and that includes right now. If you’re an odds player, though — and let’s face it, if you’re in the market right now, you’re playing the odds — then the historical odds say we’re not in for an outright disaster.

But those same odds also say we’re not out of the woods just yet.