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Mind of the Markets: Will Investor Psyche Keep Stocks Tumbling?

Friday, 2 Mar 2007 | 9:28 AM ET

The recent behavior of the markets over the last few days has been eratic --to say the least. That's even while many analysts say the fundamentals are the same as they were just last week. So just what are investors thinking--and what are the markets trying to tell us? Woody Dorsey is a behavioral finance strategist with Market Semiotics. On "Squawk Box" Dorsey took the good news bad news approach to the current market psychology.

The good news according to Dorsey is that he expects the market to rally over the next couple of weeks. The bad news--Dorsey says the markets are in an obvious correction right now--and that correction will last a while--over the next few months possibly. He says even though fundamentals may be the same--the market psychology is different. He says we've been in a sort of bubble lately in regards to stocks--but that the current correction is overdue.

Market Psychology
A look at the psychology behind this week's volatile market and what might lie ahead with Woody Dorsey, Market Semiotics behavioral finance strategist, and CNBCâ??s Becky Quick

Dorsey says we've been overly optimisitic in regards to stocks. He referred to other issues such as the difficulties in the sub-prime mortgage markets (rising foreclosures) and rising energy prices as feeding into the current market psychology. Dorsey says a correction of 8 to 10% is possible when it's all over.

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  • Joe Kernen is co-anchor of "Squawk Box," CNBC's signature morning program.

  • Becky Quick is co-anchor of "Squawk Box," CNBC's signature morning program. She's also a columnist for Fortune.

  • Andrew Ross Sorkin is a co-anchor of "Squawk Box," a financial columnist for "The New York Times" and the editor-at-large of NYT's DealBook.