Stocks: Look out when first guy blinks

Joe Donohue was on Wall Street for over 20 years. He ran a successful hedge fund and now manages private accounts with a long/short strategy. He is also the author of the UpsideTrader blog.

The S&P 500 has about doubled from the brink of Armageddon and the small-cap haven Russell 2000 hit all time highs Wednesday. Even the "laggard" that is the Nasdaq Composite is more than half way back to the halcyon days of the tech bubble.

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Joe Donohue, author of the UpsideTrader blog, urges investors to be careful as the market keeps pushing higher.

The Gilded Age for stocks has returned in all its glory and magnificence.

Corrections that used to take days and weeks now seem to happen in a few days -- or sometimes hours. And they are at a much smaller scale. There is an insatiable bid for stocks, although volume is anemic. The pros are trading but there is no trust. Is it a wall of worry we are climbing or something else?

M&A is certainly helping. Merger Monday has proudly taken back its place in market nomenclature. And don't forget that interest rates are practically nada. Zippo. Zilch.

I remember my early days in the market in the 1980s when I put my clients in 10%, AAA-rated insured tax free bonds. They were insured by The Federal Savings and Loan Insurance Corporation (FSLIC) -- which later became insolvent. Some things never change.

Now, retirees in Miami are taking action on shuffle board to enhance their return on their money market accounts. By the way, making book on shuffleboard and bingo has become a growth industry down there as skeletal condominiums litter the sky and rates hover at a half percent. Surely I jest, but you get my point.

There is nowhere to go for a return BUT stocks. The spigot that is the Fed says so.

So what happens when the first guy blinks (sells)? You never know who the "first" guy is. It's kind of like trying to pin down the guy that started traffic. You will never find him.

Who really does hit the first bid and why? We all know Wall Street is a herd mentality. Remember the old Merrill Lynch ads before they rolled over into obscurity?

Did you ever notice that when one analyst upgrades a stock, other upgrades tend to come in rapid fire fashion. Apple (AAPL, Fortune 500) is a great example of this. Funny how everybody seems to start thinking in unison just around the same time, huh?

So what is my point? I am bullish on stocks -- but not because I buy into any sort of organic growth story. I am bullish on stocks because there is a Princeton academic at the pump. And I was bullish a while back when another academic named Alan was heading the Fed.

The Princeton fellow told Congress in early 2008 that the U.S. would avoid a recession -- even as we were already neck deep in one. Now he swears there is no inflation. I am sure another mea culpa will be coming soon.

Anyway, we climb higher on anemic volume, the dollar is imploding, Europe is going backwards, crude is rocking and the Middle East is like a snow globe being shaken by Godzilla. Momentum stocks are starting to take a hit and that trend may continue once rates go up -- which they surely must at some point.

When the first guy blinks it should be fast and furious. Be careful out there.