The rally from last fall's bottom has generated a significant change in the mentality of many investors and market commentators. The more thoughtful, realistic market analysis surrounding the secular bear market seems to have dissipated.

Silly, unsubstantiated exhortations now rule the financial airwaves. "Buy now," blare many fund managers and investment advisers, "a new bull market is just beginning!" "Nasdaq 2000!" and "Buy Internet stocks!" they bellow, with nonsensical justification such as "Who knows how big this Internet thing can get?"

Don't believe it. We've been there and done that. Ignore the spurious claims that valuations don't matter. Don't get seduced by the momentum fancy. Remember: many of the same faces that exhort investors to chase this rally counseled caution many hundreds of points lower. While the perma-bears have taken it on the chin lately, I think it's time to pay closer attention to their case.

Don't get me wrong. At 60% net long, I am reasonably exposed to stocks in my portfolio. Only recently have I begun the process of trimming positions and hedging with shorts. But this represents a meaningful reversal from the advice of my last column. A few months ago, I expected a decent tradable rally through the spring. Now I think we are mostly through that process. In the short run, stocks may continue to move higher. In fact, I would much prefer to finish selling into a strong tape. Even I do not attempt to top-tick each rally.

But just because stocks may continue to rise does not make their risk/reward scenario attractive at current valuation levels. Short-term moves are very unpredictable. I believe in the Random Walk theory because the market is so irrational, not because it's perfectly rational. A more speculative blowoff might start tomorrow, capping this powerful bear market rally. We just can't know what the next few weeks may bring.

Stocks Outperforming Corporate Results

However, it seems fairly obvious that stocks are not cheap and business is not good. To me this seems like a difficult environment in which to generate high returns from equities. On a valuation basis, the large-cap indices appear expensive. For example, the Large Cap S&P Industrials trade for 140% of revenue, implying about 25 times earnings. In the past, this valuation level occurred during market peaks, not market bottoms. One could argue that it's different this time, but that has usually been dangerous to one's net worth.

On a fundamental basis, business is still difficult in most industries. Capacity utilization is low at 74% and deteriorating. Initial unemployment claims are high and rising as companies continue to cut costs. The bubble of capital investment and personal consumption has yet to be fully digested. Who needs a new car or new computer these days? How many companies need a new factory or office space? Excess capacity and intense global competition should keep corporate profit margins under pressure for quite some time.

Market sentiment has turned markedly bullish since the bottom. Chartcraft.com's Investors Intelligence sentiment survey reveal only 21% bears, a reading not seen since 1987. Volatility measures such as the VIX suggest a growing complacency regarding the outlook for stock prices. And as I have already written, the calls for Nasdaq 2000 grow ever more frequent. On CNBC, bullish forecasts grow more prominent with each uptick.

So, my market timing indicators suggest growing risk in the equity market. I have begun the process of reducing my equity exposure. I've trimmed positions in many of the "tech specs" I recommended last fall and again in March. I have ceased most new purchases in the mid-cap value sector of the market. I've begun shorting the large-cap indices like the S&P 500 and the Nasdaq. I hope the bulls are correct -- for at least the next month or so, I still have much long exposure to unwind.

But this isn't the start of a new bull market; it's a relatively mature bear market rally. It has evoked some of the silly, bullish drivel of yesteryear. Heed those bullish platitudes not, lest your portfolio assume an aggressive and risky attitude.
Robert Marcin is the principal of Marcin Asset Management, a private investment firm. Formerly, Marcin was a partner at Miller, Anderson & Sherrerd and a managing director at Morgan Stanley, where he managed the MAS Value fund (currently Morgan Stanley Institutional Value). At the time of publication, he held no positions in stocks mentioned, although positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Marcin appreciates your feedback and invites you to send it to robert.marcin@thestreet.com.