A big short, part deux

I took some heat for saying that stocks are long overdue for a correction that could drive the market down by between 10 and 20 percent.

While I have to acknowledge that, in the short term, that seems like a bit of a blunder, given the new intraday highs in the S&P 500, the transports and other major averages, I'm not sure it is prudent to back away from that call. Here's why.

Catch Ron Insana on "Closing Bell" Thursday, April 3 at 3 p.m. ET talking about his correction prediction.

Traders work on the floor of the New York Stock Exchange, April 1, 2014.
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Traders work on the floor of the New York Stock Exchange, April 1, 2014.

The technical underpinnings of the market are not as strong as I would like to see, given the nominal new highs in the market. Seasonal factors are about to turn negative and geopolitical and global economic concerns are lingering.

The market has also largely failed to hold on to good gains on rally days, which is also a sign of latent weakness.

And, in the wake of Michael Lewis's "Flash Boys" hitting store shelves, moves by regulators to slow down high-frequency trading (HFT) could also affect the market at some juncture. Witness the current FBI investigation into the HFT arena. While I am not a fan of HFT, by any means, a regulatory action that reduces the volume of trading on the combined exchanges could stress the market in the short run.

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And, to be clear—my call for a correction is a shorter call. I am a major believer that we are not in a bubble, however long it may have taken some observers to recognize that fact. I believe we are in a secular bull market that will last for several years to come, though this market remains stretched in the here and now.

Read More30% fall looming for S&P 500: Economist

Having said that, a major reason that the market is going through a "rotational correction," as opposed to a more broad and obvious one, is that central banks, around the world, appear to be getting out their bazookas again for another, potentially, significant amount of stimulus.

China's weak manufacturing data may be setting the stage for another round of easing by both the People's Bank of China and a blast of fiscal stimulus from the central planners.

The European Central Bank (ECB) is likely going to take interest rates to zero and launch a full-scale asset-buying program, much like the Federal Reserve has done in the U.S., to counter inflation, which has dropped to a five-year low.

And Janet Yellen made it very clear this week that she has absolutely no intention of raising U.S. interest rates until the economy reaches its full growth potential. To put it even more plainly, and obviously, than she did: The unemployment rate needs to be nearer 5 percent than 6 percent; underemployment needs to fall back to historic norms and inflation needs to rise to the Fed's internal target of at least, 2 percent.

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So, while I am cautious about the market's near-term prospects and will remain so unless or until the market makes more than nominal, intraday highs, I have to respect the power of central bankers to alter the outlook.

I still believe that better buying opportunities for equities will emerge later in the year after the mid-term elections and once economic data show increasing underlying strength in the economy.

But the alternative to a full-blown correction is more of this rotational selling we've seen. The leaders have been taken out and shot, while the laggards are being bought. Not my kind of game, but one that might have to be played regardless of your point of view.

Ron Insana is a CNBC and MSNBC contributor and the author of four books on Wall Street. He also delivers a daily podcast, "Insana Insights," and a long-form weekly version, both available on iTunes and at roninsana.com. Follow him on Twitter @rinsana.