Market declines do not begin when people are pessimistic, but rather optimistic.
It is actually easy to understand why. First, lets dismiss the fundamentals of stocks. Dismiss you say? How?
What is more important is the wave of buying or selling, and the herd mentality.
Lets look at the overall market. When the market hit lows in March 2009 with S&P 500 hit 666, why was that the bottom?
Did some sort of news make it the bottom? There was quite a few events that happened (including adopting fantasy accounting by changing mark to market accounting in place since 1930's.), but none that have been pinpointed to cause a market reversal that day in March.
What is more likely what happened is when the S&P 500 went from 1550 down to 666, by then, who was left to sell?
What I mean is the vast majority of people who did panic, or open to selling, did by then. I have a hard time believing that there was SIGNIFICANT amount of people left to sell as a percent of stock holders waiting for S&P 500 to hit 600 or 550 before selling. The point is, those who saw losses and weren't committed to hold did in fact sell.
So on that day, we had a swing, from not enough sellers to over-run the buyers. From that day on, overall there was more buyers than sellers. The pessimism that day was at a all time high on market view. The market does not turn around with optimism, but when MAXIMUM pessimism is reached.
We now have a dangerous situation. We have a high in LACK of pessimism. I dare not call it optimism, but people are not concerned of a market decline. We are seeing the highest lack of pessimism - optimism - in a year, and at levels seen in early 2008.
This trend of market levitation and lack of pessimism to me puts more fear about a market decline than any fundamentals.