Book Profits As Stocks Hit New Highs: Strategists

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If the market needs a wall of worry to climb, it's got one. While the stock market celebrates its new zenith and the bull run's fourth anniversary, bearish investment strategists are warning investors to leave the party as the latecomers arrive.

Their opinions contradict current stock market price-and-volume action, which shows the market is in a confirmed uptrend, as noted in IBD's Market Pulse.

Overly optimistic investor sentiment, high levels of corporate insider selling and major leaders breaking down and a handful of others suggests the market is approaching a top, says Marc Faber, editor of the "Gloom Boom & Doom Report," based in Hong Kong. Among leaders running into trouble recently has been3D Systems ( DDD ). Faber also pointed toAbercrombie & Fitch ( ANF ) andDillard's ( DDS ).

The Investors Intelligence survey of investment newsletters showed the bull-to-bear ratio registered at 2.19 last week. It could be worse. It tends to register at 1.0 at bottoms and 3.0 at tops, according to Ed Yardeni of Yardeni Research .

Investors poured $33.05 billion into U.S. stock funds so far this year, a dramatic reversal from the year-ago period when they pulled out $3.04 billion, according to EPFR Global.

Corporate insiders are selling six times more than they are buying, according to the Vickers Weekly Insider report. The current sell-buy ratio of 6.03 over the past eight week far exceeds the 2.5 threshold indicative of a weakening market, the report states.

The Federal Reserve and central banks around the world juiced the stock markets by lowering interest rates and printing money the past four years, but the growth rate of their balance sheets has been slowing down, Faber contends.

"In an era of capital superabundance, central banks will need to print money at an ever-accelerating rate to keep all assets moving up in price," Faber wrote in his March commentary. "The moment there is a slowdown in the rate of money printing, some assets will fail to appreciate or more likely decline in value."

In anticipation of stock market bubble bust, he's selling stocks and buying gold as a safe-haven asset or "as insurance against a systemic crisis and war, and against unlimited additional money printing," Faber wrote.

The S&P 500 is forming a bearish "megaphone pattern" with market peaks from 2000 and 2007 presenting price resistance, according to Harry Dent, founder of HS Dent, a stock market and economic research firm in Tampa, Fla.

"We expect the markets to peak this week and then see a 7% to 10% correction, then a final rally into the summer that will likely not exceed 1,600 on the S&P 500," he wrote in a client note.

The stock market on the last legs of forming 13-year top, says David Hunter, chief market strategist at KCCI, Ltd., a brokerage firming Jersey City, N.J.

"I expect a big sell-off to follow soon. Initially, I think we could see a 15% drop but ultimately I am expecting a decline well in excess of 50%," Hunter said in an email. "I believe the global economy is continuing to move toward a recession, one that will ultimately be very deep due to the enormous leverage in the system."

Less Gloom, Less Doom

Alec Young, global equity strategist at S&P Capital IQ, recommends lightening up on stocks with the expectation of a 3% to 5% dip and then buying back at lower prices.

"(The S&P 500) has been on quite a run and we think it's closing in on the time for the market to recharge its batteries," he wrote in a note. "Many sentiment indicators are now showing high levels of optimism, a warning sign, in our view."

He added: "While the pace of gains has not surprisingly slowed since January, the trend remains firmly higher as investors discount previously underappreciated bullish drivers. These include consistently better-than-expected U.S. economic data, which, we think is fueling confidence that companies will continue to exceed consensus earnings per share expectations, despite sluggish guidance.

"In addition, while withdrawal pains from stimulus are likely eventually, Federal Reserve Chairman (Ben) Bernanke has made clear that QE (quantitative easing) tapering isn't likely in the forecast horizon. That coupled with abundant liquidity from the European Central Bank, Bank of Japan and Bank of England and still reasonable valuations make a near-term challenge of the S&P's record high likely."

Whether the market is fully valued or overvalued, it could get even more overvalued, says Ben Woodward, chief investment officer at Black Diamond Investment Partners in Atlanta, Ga.

"Remember that Alan Greenspan uttered the words 'irrational exuberance' a full four years before the tech bubble bursting," Woodward said in an email. "To quote Lord Keynes, 'the market can stay irrational longer than you can stay solvent.'"

The market has just broken out of a 13-year-long, cup-with-handle base that digested the tech bubble, the housing bubble and the 2008 financial meltdown and has just started a fresh bull market, said Damon Vickers, chief investment officer of Damon Vickers + Co. in Seattle.

"Price has broken through all of the resistance that has kept market range bound for 13 years," Vickers said. "Price is the principal driver of assets and price tells us when to get in -- not our opinions, not our biases."

The fundamental picture still appears ugly when bull markets start and there are many reasons to be skeptical, but price action prevails over all other variables, Vickers contends.

"At the beginning of bull markets, the fundamentals are not always in place," he said. Vickers said he will know he's wrong when a stock falls 7% or 8% below his purchase price.

On the stock market today , SPDR S&P 500 ( SPY ), climbed 0.5% to 155.47. It's vaulted 131% from its March 6, 2009, bear market low of 67.10.

PowerShares QQQ ( QQQ ), tracking the 100 largest nonfinancial stocks on the Nasdaq, picked up 0.2% to 68.83. It's rallied 174% from its trough in November 2008. It eclipsed its 2007 peak in February 2011.

SPDR Dow Jones Industrial Average (DIA) added 0.44% to 143.77. It's climbed 122% from its 2009 bear market bottom.

IShares MSCI EAFE Index (EFA), tracking developed foreign markets, was up 0.22% at 59.38. It's only gained 88% from its bear market bottom and it's 33% below its 2007 high.

IShares MSCI Emerging Markets Index (EEM) rose 1% to 44.194. It's climbed 142% from its bear market low, but it hasn't recovered its prebear market peak either. It's 21% below its 2007 apex.

Follow Trang Ho on Twitter @TrangHoETFs .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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