This analysis considers investor psychology within the larger tapestry of economic stress points and equity valuations. Although investor sentiment has sobered over the last year, it has not approached the level of despair or pessimism that typically signals capitulation at market bottoms. Optimists cite several macroeconomic indicators as reasons for their continued confidence, while pessimists focus the accumulated debt that hangs over a weakening economy. The key indicators to watch will be consumer confidence, business capital expenditures, and the ability of the stock market to shrug off bad news. There will be rallies but their strength is less important than what happens when they fade. If the broad averages manage to remain above their recent lows each time the market sells off, investors will gain confidence however, if the lows are clearly breached, we would expect investor sentiment to crumble.