The laws of Pavlovian learning are similar to the laws governing the learning of expectations in humans. In this analogy "conditioned stimuli" are market indicators, and "unconditioned stimuli" are changes in market directions.
Right now, a number of indicators point to rising stock prices. These are very low interest rates, inexpensive prices, an improving economy, and upward momentum. I can think of only one significant indicator pointing to lower prices, namely, overbought condition.
When a number of CSs are presented in compound, super expectations occur. (This is called "super-excitatory conditioning.) Even when these CSs are followed by reinforcement, often the conditioned bonds are decremented in strength because the amount of reinforcement is less than expected.
Stock market expectations are high right now. If the laws of Pavlovian conditioning hold, anything less than a soaring market could disappoint investors who may reason that the gains are less than expected.
Bottom line: The Pavlov dog indicator predicts that a correction in stock prices will come soon, perhaps very soon, after mediocre/modest rises in prices.
