A common belief is that the mass of investors "see" into the future and buy or sell stocks accordingly -- in the present.
EWI's Robert Prechter disagrees:
"Technicians assert that the reason earnings lag stock prices is that smart investors anticipate, or “discount,” the future, in other words, guess the future correctly...The idea that the mass of investors possess near-omniscience about the economic future is difficult to defend. It does not explain why in 1928 the market foresaw nothing but blue sky, in 1929 very suddenly foresaw depression, and in early 1930 anticipated a recovery that never happened...At the start of a bull trend, the vast majority is bearish, while at the start of a bear trend, it is bullish. Their erroneous convictions often reach an extreme... right at the worst time.
Because markets are patterned, the concept of near-perfect collective forecasting must be false."
Wave Principle of Human Social Behavior, pp. 331-332
The market also saw "blue sky" when the Dow reached its all-time high in 2007, right before the market headed downward and the economy fell into the "Great Recession."
Apparently, the investing public is seeing blue sky again.
While stock mutual fund investors have largely been on the sidelines during much of the rally since the bottom two years ago, their actions have recently changed:
"The very latest figures...show that the public in January finally started 'plowing cash back into these funds' at the fastest monthly rate in seven years."
Elliott Wave Theorist, February 2011
Frankly, it doesn’t matter what reasons main street investors cite as to why they’re putting new money into stock funds, the bottom line is that the public is simply getting caught up in the market psychology of the moment.
Investor psychology is what creates the price pattern of the market -- not "near omniscience" about future events.
What is investor psychology and the market's price pattern telling us now?
The just published Elliott Wave Financial Forecast says, "...bulls are even more zealous now than they were in 2007 when the market topped."