2014.03.1007:13:01UTC+00Caution propose in stocks as margin debt marks touches new highs

Several of warning indications are flashing in the stock market, and while not exhibitive of an imminent crash, they’re telling investors to practice being careful, say market strategists.

Stocks closed in a high note last week, halting on a choppy Friday highlighted by the release of a better-than-assumed job report. The Dow Jones Industrial Average soared 0.8%, the S&P 500 Index rallied 1% to close at another record high of 1,878.04, and the Nasdaq Composite Index closed in a bolstering 0.7% for the week. All except the Dow are higher for the year, which is still in a downbeat 0.8% in 2014.

The increases haven’t come without a share of fretting that the good times can’t last. Among the warnings indications: The indexes’ string of record highs; high levels of margin debt, or borrowings to finance stock purchases; the slim number of prior bull markets that have lasted past this point; and valuations that are close to levels when stocks last peaked.

Margin debt, which tends to spike alongside stock increases and declines, has been rattling investors for months. “As that debt goes up, the market’s foundation gets shakier and shakier,” said Brad McMillan, chief investment officer for Commonwealth Financial. “The correction could be deeper.”

Also of concern is the bull market’s fifth birthday on Monday. The average bull market only lasts about 4.5 years, putting the current one in rarefied territory. Of the 12 bull markets since World War II, only half have lasted five years, and only three have made it to their sixth birthday.

Assumptions about bubbles returned last week. Technical analysts pointed to a possible bubble formation in biotech stocks . Dallas Federal Reserve President Richard Fisher raised concern about “eye-popping levels” of some stock metrics like margin debt.

Valuations, or the financial values of stocks compared to the companies’ underlying profits, have passed levels last reached in 2007, or the top of the last bull market. Bull markets tend to expire when trailing 12-month P/E ratios get into 17x or 18x territory, says LPL Financial’s Jeff Kleintop. They’re nearing 18x now.

Caution, for some strategists, means purchasing stocks selectively. But there are others who note the market is still moving on broad swings in sentiment, just as it did during the post -2009 recovery from the lowest. That tendency lumps quality and risky stocks together, throwing careful selection out the window.

“This is still very much a risk-on, risk-off market,” McMillan said. “We saw that with Ukraine.”

Last week, both the Dow and the S&P 500 gave up nearly 1% on March 3 after Russian troops assembled near Ukraine’s border, only for stocks to rebound about 1.5% after Russian President Vladimir Putin pulled them back the next day.