“You never get a second chance to make a first impression.” The stock market made its first impression centuries ago and hasn’t changed.

A bear, on the other hand, knows it can hide its ravenous instincts behind the facade of a teddy bear.

After a 75%, 14-month rally in the S&P (SNP: ^GSPC), Dow Jones (DJI: ^DJI), Nasdaq (Nasdaq: ^IXIC) and many other indexes, Wall Street denies even the presence of a bear. The 55% drop from the 2007 highs was quickly forgotten.

After the S&P (NYSEArca: SPY) dropped 14.68% from April 26 to May 25 – the Nasdaq (Nasdaq: QQQQ) fell 17.97% from April 26 to May 6 - some concede that a calm and fuzzy teddy bear is merely making sure things don’t overheat.

The market’s behavior since the April 26 highs has all the ingredients of a major market top. However, the market will do all it can to keep you believing in higher prices. The market wants to string you along and make sure you stay on the ride to new lows as long as possible.

Deception at Its Best

If the market went straight down it would advertise its intentions and give investors a chance to get out in time. Of course it doesn’t do that. To make the decline palatable, it punctuates the decline with rallies.

Nothing gets investors excited like rising prices. The bigger the bounce, the better. Huge one-day gains are deceptively effective.

We saw such a rally on Monday, May 10. The major indexes soared between 3-4%. The Dow (NYSEArca: DIA) tagged on 405 points. On May 10, the Dow closed at 10,785, the S&P at 1,159. This seems bullish, right?

On May 14, 2010, the ETF Profit Strategy Newsletter noted the following: “History tells us this is not bullish. We've found 16 instances where the DJIA rallied 400 points or more, 12 of them hit during the post-2007 decline, most of them in September/October 2008.”

On May 20, the Newsletter warned that; “There is a chance that we will see similar explosions to the upside over the next days and weeks. If we do, we view them as opportunities to add more short positions.” However, “the 200-day MA at 1,102 would be a logical resistance should a bounce occur.”

The Bear Is a Genius

Another one of those “upside explosions” arrived on May 27 and lifted the major indexes more than 3%. As expected though, it stopped right at the 200-day MA.

Today the S&P (NYSEArca: IVV) is at 1,070, the Dow at 10,000. Ironically, investors feel better about their investments because of those (fake) bull rallies, but despite two huge one-day gains, the indexes are 7-8% lower today than a few weeks ago. The bear market is a genius.

Square Peg In a Round Hole

Even toddlers find out very early in life that it’s a challenge to put a square peg in a round hole. It just doesn’t work. Perhaps toddlers are a step ahead of the financial media.

Every day, the media tries to interpret the market. Stocks are up because … or stocks are down on concerns of …

Throughout February, March, and most of April, stocks rallied because of multiple proposed Greek bailout packages. Stocks even rallied when the packages didn’t come to fruition.

The chart below plots some of the headlines against the actual performance of the market. Compare the S&P 500s journey to the financial media roadmap. If the media was your GPS, you’d be eternally lost.

2-11-2010: CBS – European Union throws a big fat Greek bailout
2-27-2010: WSJ – Athens, Berlin spar as bailout takes shape (the bailout amount was estimated to be $41 billion)
3-13-2010: BBC – EU close to Greece bail-out deal

The tone changed no later than on May 6th, when the Dow dropped over 1,000 points. CNNMoney reports that “Stocks tumble on faulty quest, Greek concerns.”

Greece was the obvious scapegoat for the May 6 decline. On May 10, the Dow rallied 405 points. Why?  CNBC reported that “US stocks get a bailout pop.” The European (NYSEArca: FEZ) bailout must be magic, it can lift and sink U.S. stocks (NYSEArca: VTI) all by itself.

Since it worked so well, the media used the same scheme to explain the May 25 drop to this year’s lows and the monster rally two days later. “Wall Street jumps as worry about Europe eases” was Reuter’s conclusion on May 27. I guess Europe concerns are back since the market has declined ever since.

In Cahoots, Bear Market and the Media

Without the unwilling assistance of Wall Street and the financial media, the bear would not be able to disguise itself. All throughout the painful 2008/2009 decline, the financial media kept “dangling the carrot of hope” before investors. “The fundamentals are strong” – “The recovery is just around the corner” was the carrot that kept investors hoping for better times.

On March 9, 2009, the Wall Street Journal touted, “Dow 5,000. There’s a case for it.” The Dow bottomed that day and went on a 14-month tear. Quite to the contrary, the ETF Profit Strategy Newsletter issued a strong buy signal via the March 2, 2009 Trend Change Alert which recommend to buy leveraged ETFs like the Ultra Financial ProShares (NYSEArca: UYG) and Ultra S&P 500 ProShares (NYSEArca: SSO).

Nevertheless, the media speaks and investors listen. Near the market peaks of 2000 and 2007, money market funds accounted for around 33% of the money in stock funds. At the 2003 bottom, 77% of funds were parked in money market accounts. About the same was true in 2009. In summary, investors are fully invested before a crash and in cash before a rally.

Reverse Buy and Sell

On April 7, the Wall Street Journal claimed that “Dow 11,000 is only the beginning.” On April 26, the day the indexes reached this year’s high watermark, the WSJ reported that “Technical analysts see room to roll.”

Again, this was in stark contract to the technical forecast offered by the ETF Profit Strategy Newsletter on April 28: “With various sentiment gauges having reached multi-year extremes and Investors Intelligence (II) bullishness at 54% (highest since December 2007), the potential exists that Monday’s high - which was only one point short of the 61.8% Fibonacci retracement at 1,220 – marked a significant top.”

Ever since April 26, the direction has been down. All attempts to explain the decline won’t restore losses.

Even though the market uses the media to get as many investors separated from their money as possible, it is far ahead of any news reports. The market looks ahead 3, 6, maybe even 12 month. Most, if not all the news we read is already baked into the market’s performance.

And what the market is telling those willing to listen is that there is big trouble ahead. It’s not just the fact that the S&P and most other indexes have fallen and stayed below the 200-day moving average or that the VIX (Chicago Options: ^VIX) has soared from 15.32 to above 40.

The ETF Profit Strategy Newsletter attempts to tune out the noise and listen directly to the market. The bi-weekly updates tend to keep investors on the right side of the market. Will you follow the “carrot of hope” or the market’s underlying message?