(MONEY Magazine) – Get ready for a round of raucous corporate marriages--and a honeymoon for share prices--that will bring back memories of the booming '80s.

Don't get us wrong. We still think stocks are overpriced. What we're saying is that they could get even more overpriced in the next six months, because of a string of billion-dollar takeovers. The party probably won't run out of bubbly until the Dow tops 5000--a gain of 6% or so probably before year-end. Then look for the market to sober up in '96 with a sharp 20% drop.

But until then, enjoy the merger madness. Attention recently has focused on media deals--led by Westinghouse's proposed $5.4 billion purchase of CBS and Disney's $19 billion offer for Capital Cities/ABC. But this urge to merge is more widespread. The total value of proposals so far this year tops $223 billion, compared with $189 billion for the same period in '94.

And there's more to come. For example, Chemical Banking, the fourth largest U.S. bank holding company, with assets of $178.5 billion, is rumored to be interested in $120 billion Chase Manhattan. (For other deals in the works, see Dan Dorfman's column on page 19.)

Don't misread this spree as a sign that stocks are cheap, though. "Today's mergers aren't financial bargains," says Michael Metz, chief investment strategist at New York City's Oppenheimer & Co. "Valuations just don't mean much when money is as plentiful as it is now."

Nonetheless, takeovers are likely to boost stocks further. Here's why:

The premiums paid in acquisitions make today's share prices look like bargains. CBS was trading for less than $60 early this year. Then Westinghouse came along willing to pay $81. However, after Disney agreed to a 27% premium for Capital Cities/ABC, many analysts decided CBS might be worth as much as $90 a share to a wannabe networker like Ted Turner.

Takeovers will pump up investor enthusiasm. "The stock market is not ruled simply by price/earnings ratios," says Stanley A. Nabi, chief economist at Bessemer Trust, a money-management firm in New York City. If takeovers create enough excitement, ordinary investors will buy stocks at even higher P/Es than today's.

Deals free up cash for new investment. In most acquisitions, all or part of the price is cash. "Shareholders usually reinvest that money," says Peter Ca no ni, a managing director at Aeltus, a money-management firm in Hartford. And the same cash transfer occurs when corporations buy back their own shares. "From 1991 through '93, companies issued more stock than they redeemed," he notes. "But last year, they redeemed $12 billion more than they issued, and net redemptions are on track to top $35 billion in '95."

Some analysts may interpret the 6%-plus run-up in stock prices we see as the start of a new bull market. But we interpret it the opposite way--the higher the market flies, the greater the likelihood of a steep drop sometime between the spring of 1996 and mid-'97.

If we are right, you'd be wise to start lowering your market risk. Fund Watch on page 54 explains some prudent ways to invest in index funds. In addition, the feature article on page 78 outlines techniques to protect your portfolio and decide when to sell individual stocks.

So take advantage of today's intoxicating stock market. But be sure that if the market falls out of bed next year, you won't get caught with your hopes up and your profits down.

Wall Street editor Michael Sivy is a chartered financial analyst and a former Wall Street research director.