Wake me when the market goes down

Here's an image that I've shamelessly stolen from Bespoke's weekly review:

(May as well take the time to plug their service too. If a reccie from me doesn't do it for you, note that Gary Tanashian also subscribed to them on my reccie, and he's a guy who's notorious for not wanting to clutter his mind with other people's analyses.)

Anyway, back to the above chart.

I'll tell you right now that everyone in the market sees this chart.

Everyone in the market also remembers last fall's crash.

Everyone in the market wants to be out before the S&P 500 tanks 200 points again this year.

Everyone in the market is casting about, trying to find something that will make the S&P 500 tank by 200 points again.

That explains all the worry about China all of a sudden. (Tell me - did China suddenly become a corrupt plutocracy riddled with insolvent banks and full of fake government economic statistics this spring?)

That explains the continued worry about Greece (tell me - did Greece suddenly become a clusterfuck nation with a corrupt government and a population that doesn't pay any taxes this spring?) and the rest of Europe (tell me - did Europe suddenly become an entitlement society with large government deficits this spring?).

It even explains the worry about the drill-down re: Alcoa's earnings. (tell me - did Alcoa suddenly start to suck this spring?)

This is all explained by the psychological mumbo-jumbo known as "self-fulfilling prophecy". Follow the link and read up on it at Wikipedia. Oh, also look up "recency effect".

So, everyone in the market is trying to repeat 2011 this year. They want the market to go down. Maybe because they saw what happened last year, and figure if they get a repeat this year, they can do things differently and get on the right side of the collapse and make money shorting the market this time?

Difference is, the market is also a cybernetic feedback system, with multiple inputs. One important input is sentiment. But other important inputs are crap like velocity of money, consumer spending, earnings, and so on.

In a multiple input feedback system, if you push down hard at one input, you can depress the output a little bit - but if the other inputs are pushing up, your output won't go down by far. Basically, it'll partially ignore the input that doesn't agree with other inputs.

Then when you take away the downward push, the whole system can spring back up hard as it gets back to its normal equilibrium point.

What I'm trying to say is, the market wants the market to crash 200 points like last fall. Unfortunately, despite all the worry being spread thru the blogosphere, it's just not going down that well.

People are even comparing the present slowing upward trend of the spring with the nasty lower-high rounded top that presaged the enormous downward kablooie of 2007.

And yet the market's not going down. If sentiment sucks so bad, why isn't the market going down? Because something else is keeping it up.

And bloggers are stupid humans. Don't forget that. Ritholtz loves going on about investor psychology and how it stops you from making money - but why doesn't he write an article on how investor psychology also makes bloggers write bullshit?

---

ADDENDUM: I guess what I'm really saying is, blah blah everybody's on one side of the boat, blah blah herd mentality, blah blah crowded trades. Or something.

Tired from a morning of heavy posting. Need lunch, then will play 3 hours of Civ 4.

---

PUDENDUM: Holy crap. I forgot I also had to read the rest of this week's Bespoke report... so I went to page four, and... holy crap.

I'm not going to reprint that chart too cos I already stole one this week and I do have some morals. But wow. Economic sentiment indicators are reading better than they did a year ago, and yet market sentiment indicators are all lower. Strategist Recommended Equity Allocation is in fact at a five year low.

Strategist Recommended Equity Allocation is in fact at a five year low.

Strategist Recommended Equity Allocation is in fact at a five year low.

Strategist Recommended Equity Allocation is in fact at a five year low.

I want to make sure you read that:

Strategist Recommended Equity Allocation is in fact at a five year low.

That tells me right there that, indeed, the market is already positioning itself for a 2011 dump to S&P 1000, if not a 2007 dump to S&P 666.

Eppur non si muove!

And as of Wednesday Gary points out that bonds are heavily overbid.

Gee-zuss!

See, that's why I like Bespoke and should read their weekly reports more. I read too much of the daily blogoblather, and get too wound up in the neurosis of the market masses, when I should be keeping the cold hard data of Bespoke in mind.