An old cliché says the price is truth, but there are times when price alone does not tell the whole story. We think this is one of those times.

The direction of stock prices typically guides investors’ views of the equity market. Since early last October, the market’s sharp downturn dampened enthusiasm about the market’s prospects. This was abundantly clear in the late-December American Association of Individual Investors weekly sentiment survey, which showed the highest percentage of bearishly-biased respondents in five years. A close look at the market’s internal characteristics, however, reveals a condition similar to what was present at several key turning points for the market.

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