Well, here we are at the onset of fourth quarter - traditionally the best quarter of the year. And, you don't need us to tell you that the third quarter is over...although you may not be aware Q3 is usually the worst quarter of the year. In fact, I tend to think that Q4 is usually rather bullish primarily because of the Q3 lull, kind of like the calm before the storm.

What's that got to do with anything now?

When things go as expected, the market is a piece of cake to navigate. But, things rarely go as expected anymore. The 'average' Q3 for the S&P 500 is a gain of 0.3%, while the average Q3 gain for the NASDAQ is actually a loss, of 1.2%. But, the typical fourth quarter heats up for both indices; the S&P 500 averages a 4.3% gain, while the NASDAQ Composite usually posts a gain of about 4.8% during the last three months of the year. All other things being nominal, we tend to look for similar results every year, at least in a market-wide basis.

Of course, when Q3 bucks the trend, it forces all of us to question if the echo will linger into the last quarter of the year. As you may have deduced already - by our discussion - this year's Q3 was an oddball. The S&P 500 gained 5.1% in the third quarter, while the NASDAQ rallied 3.9%.

What's the implication for us? There is some chatter about there being no gas left in the engine for a Q4 rally...that it was all used up in Q3's surprising strength. While we understand the rationale, we're not so sure we agree with the expectation. On the flipside, we also think it all depends on when you start the clock. If one measures the fourth quarter as all the days between September 29th and December 31st, then yeah, we'd be surprised to see this year's Q4 as strong as they usually are. If instead you're measuring a Q4 rally from the bottom usually made around mid-October, then we think there's a good chance of a really nice upside move.

Confused? Don't be - that's just the gentle way of saying we're a little overdue for a correction. Stocks are overbought, and investors are bizarrely complacent. The CBOE Volatility Index has been hugging a support line around 12 for nearly two months. While it's nice for investors and traders to have some degree of bullish confidence, VIX readings that low rarely persist without a price being paid eventually...in the form of a pullback. It shouldn't be anything spectacular, or even gut-wrenching, but it will catch some people off guard.

As always, though, the question is just one of when. Truthfully, we expected to see a moderate decline started by now, yet the bulls have remained persistent. That's fine - the market rewards the patient. Maybe we'll pull back starting today, or maybe next week. We don't know exactly when - we just know we're due. I suspect the VIX will tell the tale very well, both in the beginning, and the end. And personally, I say the sooner the better. After all, each day the indices inch higher means the size of the dip is just that much greater.

To reiterate, I don't see any corrective move being devastating. If you were thinking about selling, then you may find yourself a little disappointed about the prices you see once it finally happens. But as far as long-term positions go, I don't see it as a reason to panic...at least not yet. I do, however, see any dip as a great entry point for long positions. But I repeat, be patient; there's never a trade or idea you absolutely have to act on 'today or not at all'.

This brings me back to my original question...will Q4 start where Q3 left off? In my opinion, no, not really- at least not right away. We may see a couple more days of strength based on the Dow's 'new high' news. But, the buy-new-highs mentality has not necessarily been as prudent as all the talking heads on TV would have you believe. Instead, I'm looking for the uptrend to slow enough over the next few days to finally convince enough people to bail out of stocks and regroup at lower levels. And like I said, I view it as an entry opportunity into the decent rally I expect to see once we make a strong bottom.

In the meantime, I can't express how excited I am that I'll be able to narrate the story as it unfolds...or even as it doesn't unfold. This 'Heating Up' column is deliberately open-ended, so we can look at whatever we need to, when it becomes relevant. Right now, I just see this as one of the ideas traders need to consider. When it's no longer a hot button, we'll move on. And, if you have an article-worthy idea, feel free to send 'em in.