Market Keeps Rising, But Who's Buying?

By Jeff Cox, Senior Writer

NEW YORK ( CNBC) -- The stock market's direction continues to be aggressively and consistently higher, but it's hard to decipher sometimes who is doing all the buying.

Virtually every metric offered to gauge investor behavior is showing money draining out of the market and insiders skeptical about the future.

From mutual fund flows to insider selling to analyst downgrades and upgrades, pessimism is pouring in faster than a Pabst Blue Ribbon beer tap at a hipster spring break party.

"Why are investors so cautious? Demographics and poor longer-term stock market returns probably play a role," notes Charles Biderman, CEO at the TrimTabs market research firm, in his weekly analysis. "But we also think that all the volatility and central bank interventions in financial markets are leading more investors to question how stable the financial system really is."

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Biderman hauls out a variety of data points to show the level of investor caution.

Stock-based mutual funds have lost $1.2 billion since the start of February even though those same funds have returned 9.8 % in 2012.

Moreover, bond mutual funds have pulled in at least $6 billion for six weeks running, totaling $29.6 billion in the past four weeks, which was 11.8 times as much the $2.5 billion into all equity funds.

Finally, and perhaps most damning, corporate insiders are dumping their holdings in droves, selling $6.8 billion in February, the most in 11 months and 13 times the level of insider buying, which is way above the norm of 8.6 times.

And yet...the market keeps on rising.

For answers to the sentiment dichotomy, Nick Colas, chief market strategist at ConvergEx in New York, took a look at opinions regarding upcoming quarterly earnings for the Dow industrials, and saw a similar level of pessimism in the analyst community.

Analysts expect just 5% year-over-year sales growth for the Dow 30, which is the smallest gain in the short time his company has been tracking such expectations. Similarly, Thomson Reuters has found companies issuing negative earnings preannouncements outweighing those issuing positive ones by a 3-to-1 margin, the highest since the crisis days of 2009.

Colas tries to figure out why the market can look so good but expectations be so dour by dissecting analyst psychology.