Bull market: Is it showing fatigue or still ready to run?

A short-term pullback may be the pause that refreshes

NEW YORK — Can the good times continue on Wall Street?

Despite all the gloom and doom, the view through the rearview mirror shows a U.S. stock market on the move. Stocks have doubled in value since the March 2009 trough. The Dow is flirting with 13,000 for the first time since 2008. The Standard & Poor’s 500 topped its April 2011 high Friday and is at a new bull market high.

But money is made betting on the future, not the past. And right now, investors see signs of rally fatigue that could lead to a possible pullback. But they also see a market that could regain momentum and make a run at the October 2007 all-time highs.

S&P’S chief investment strategist, Sam Stovall, says a short-term drop of 5% can’t be ruled out. But he says stocks remain in a bull market.

“The rally,” adds Rod Smyth, chief investment strategist at Riverfront Investment Group, “is entering a mature phase.” Still, he says the S&P 500 could trade up to 1500, or near its record close of 1565.15. But he’s not currently deploying new cash into stocks.

The recent rally has been fueled by better news out of Europe, including a second bailout agreed upon by Greece and the eurozone that Wall Street believes will avert a 2008-style financial crisis. Brighter economic news in the U.S. has also reduced the odds of a double-dip recession.

“The market has enjoyed a huge relief rally,” says Edward Yardeni, investment strategist at Yardeni Research. “Breaking a big round number like Dow 13,000 is not significant,” he adds. “What is significant is whether the Dow can break out above that level. If it can, it would inject more confidence that the bull is not ready to keel over.”

Upward momentum has slowed. And investors have turned more cautious. “The market is due for a pause,” says Pat Adams, manager of Dunham Loss Averse fund. He says it doesn’t make sense to buy now after so many stocks have enjoyed “parabolic” runs.

New headwinds have emerged. Economists believe Greece will need a third bailout. Stocks are at levels that sparked selling in the past and a lot of the better news is already priced in. The sharp rise in oil prices due to saber rattling by Iran could also slow the recovery and hurt stocks.

“We are not breaking out, we are topping out,” warns Richard Suttmeier, chief market strategist at Valuengine.com.