From research firm Trim Tabs, via blog ZeroHedge:

The most positive economic development in 2009 was the stock market rally. Since the middle of March, the market cap of all U.S. stocks has soared more than $6 trillion.  The “wealth effect” of rising stock prices has soothed the nerves and boosted the net worth of the half of Americans who own stock.

We cannot identify the source of the new money that pushed stock prices up so far so fast.  For the most part, the money did not come from the traditional players that provided money in the past:

• Companies. Corporate America has been a huge net seller.  The float of shares has ballooned $133 billion since the start of April.
• Retail investor funds. Retail investors have hardly bought any U.S. equities. Bond funds, yes. U.S equity funds, no.  U.S. equity funds and ETFs have received just $17 billion since the start of April.  Over that same time frame bond mutual funds and ETFs received $351 billion.
• Retail investor direct. We doubt retail investors were big direct purchases of equities.  Market volatility in this decade has been the highest since the 1930s, and we no evidence retail investors were piling into individual stocks.  Also, retail investor sentiment has been mostly neutral since the rally began.
• Foreign investors. Foreign investors have provided some buying power, purchasing $109 billion in U.S. stocks from April through October.  But we suspect foreign purchases slowed in November and December because the U.S. dollar was weakening.
• Hedge funds. We have no way to track in real time what hedge funds do, and they may well have shifted some assets into U.S. equities.  But we doubt their buying power was enormous because they posted an outflow of $12 billion from April through November.
• Pension funds. All the anecdotal evidence we have indicates that pension funds have not been making a huge asset allocation shift and have not moved more than about $100 billion from bonds and cash into U.S. equities since the rally began.

If the money to boost stock prices did not come from the traditional players, it had to have come from somewhere else.

Since we don’t know where the buying power is coming from , we don’t know what to watch for a signal that the market is about to “adjust” downward to what we consider to be its fundamentally based fair value.