'He said what?' Why you should have raised cash

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The perma-bull solution to market swoons is pretty simple: Use the drop as a chance to put money to work and buy the dip.

But what happens if you haven't been raising cash during the previous run-up and have precious little left with which to buy?

Generally two results come into play: Either investors have to sit on their hands and hope the selloff isn't too steep, or they have to start selling now in hopes of buying later.

Such is the dilemma the market now faces after months of Wall Street analysts falling over each other to raise S&P 500 price targets, with precious little talk of taking profits and raising cash levels.

(Read more: This might be when the market returns to normal)

Jeffrey Saut, chief investment strategist at Raymond James, has been watching the developments with bemusement, and in a note described his reaction to an unnamed perma-bull's market observations:

He said what?! I listened to it, rewound it, and then listened to it again. What I heard was generally correct; he said, "You should put some of your cash back to work here given (Thursday's) decline, but maybe you could put a little of it back to work and then let the market come down a bit more before committing it all." Of course, nobody asked the follow-up question of, "How can we put some cash back to work when you NEVER told us to raise any cash?!"

Saut has been skittish on the market since mid-July, which he said was a likely topping point for the market.

Stocks have spent a good deal of time looking for direction, but August's action has heightened correction talk, a development that very well could set up a strong buying opportunity for the fourth quarter.

(Read more: Gartman: I timed the market wrong, and I want out)

In Saut's mind:

Obviously, I have thought the mid-July through mid-August timeframe was the window in which a meaningful decline would begin. I got numerous congratulatory emails about that stance yesterday. But, it is still far too early to "Take a Bow," thank you, Madonna.

He, in fact, goes on to say his call is a far cry from being realized, with the S&P 500 off just 3 percent from its intraday record high, which is a long way from the 10 percent or more pullback he expected.

His point, though, is that being perma-anything is a dangerous place to be.

There's some substantial good news underlying this story: Amid all the frantic bullishness, investors have stayed fairly conservative and to an extent have brushed off the starry-eyed strategists.

(Read more: Here's what's worrying the stock market)

Pros responding to the August Bank of America Merrill Lynch Fund Managers Survey reported cash levels at 4.5 percent, near a 2013 high.

Individual investors have been sticking cash back into money market funds as well, with Thomson Reuters reporting an inflow of $5.6 billion last week, by far the largest of any funds group, putting the total at $2.62 trillion.

Saut thinks this begins a challenging period for the market.

(Friday) "they" may try and rally stocks again. But, my long-standing mantra has been "never on a Friday," meaning that once you are into one of these swoons they rarely bottom on a Friday, leaving participants brooding about their losses over the weekend.

By CNBC's Jeff Cox. Follow him @JeffCoxCNBCcom on Twitter.