In other words: the market is ahead of the reality, and investors are taking profits. There's a lot of hope baked into these stock price levels, hope that the banks are all healed, hope that the car companies will survive, hope that inflation won't be as bad as most economists think, hope that housing has reached a bottom, hope that oil has reached a peak, hope that the new administration has all the answers, hope that the stimulus package will do more good (new jobs, more money in the economy to spur it along) than bad (inflation roaring ahead in a few months from all that money), hope that earnings will improve in the second half of this year. That's a lot of hope.

Of course, as we all know, in the stock market, there is no hope, only facts. The facts are that there will be some good signs (housing starts are up 17%, some regions are showing higher home sales, inflation is not apparent yet anywhere except in commodities which reflect investors' fear of inflation, oil is somewhat stable around $70 a barrel) but these signs are transitory in nature. Everything's in a state of flux and subject to quick changes.

There isn't any indication that housing, nationally, has reached a low, especially with more foreclosures coming onto the market every day. Also, there aren't many industries hiring. There was an article in the Wall Street Journal that the financial industry is starting to add jobs, in very specific areas. As usual, the Street firms cut back too much when they hit the panic button. Now they need to bring in more people to fill the gaps. With the high unemployment in the industry, some very good pros are out of a job so it's a great time to add employees. But that's the exception. Not many other industries are adding jobs because demand for products and services is still very weak.

While it was a great ride to go from the lows of March (when the DJIA hit 6440) to the highs of 8877 on June 10 (a gain of 38% in three months), it's not realistic to assume that a rally of that magnitude will be sustained for a long time, especially when most of the foundation for it is built on hope. There is nothing in economic data that suggests a major rally should be happening. None of the numbers is rebounding like the market is. The stock market is always discounting the future, usually six to nine months out, so it should be ahead of any numbers. But the numbers out now don't suggest the kind of recovery that the market currently reflects.

So it's no surprise the market takes a breather, that it lunges upward, then falls back. Fortunately, there is some hope left in investors. When the market cratered in March (and back in October and November of last year), all hope seemed lost. Investors had given up. Part of this rally is simply rectifying the oversold position that most stocks experienced. Investors sold everything, even the best of stocks (the ones actually growing earnings). There was no hope, and stock prices reflected that.

Now there is some hope. But hope isn't enough to sustain a rally. There has to be real earnings growth, new home sales, higher employment, proof that inflation won't be a major problem down the road. And those numbers won't be consistent. There will be months when things look better, then months when things look worse. Stocks will reflect each nuance, greeting each economic release with a "sell" or a "buy" order.

Until there is some consistency in positive data, don't expect anything from stocks except starts and stops, ups and downs with a bias toward going higher. Unless the numbers show things getting worse month after month. Then all hope will disappear fast, and stocks will once again retrace their downward spiral, maybe even hitting old lows and beyond. Let's all hope that doesn't happen.

Ted Allrich is the founder of The Online Investor, founder of Allrich Investment Management, LLC, as well as the author of the book Comfort Zone Investing: Build Wealth and Sleep Well at Night. In this weekly column, he'll offer advice to investors who are just getting started.