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Dima Lomachevsky

David Rosenberg, who recently swung more to the bullish camp after years of having the permabear title attached to his name, is sounding increasingly uneasy about the U.S stock market as it climbs further into record territory.

"It is worth noting that as the U.S. stock market has been the world's darling for a good three years now, it is starting to look just a tad frothy," said the chief economist with Gluskin Sheff + Associates in his note to clients today.

"Not a bubble, but all the talk of a melt-up has me a bit on edge."

The Dow Jones industrial average closed at its 35th record high today after soaring on Friday with the help of a surprisingly strong U.S. jobs report for October. With every tick higher, there's been more concern about valuations getting stretched and the potential for a bruising pullback.

Mr. Rosenberg is among those sounding alarm.

"Make no mistake, we are in the quadrant of the investment cycle when the S&P 500 advances at an 11 per cent annual rate. It has more than doubled that average increase so far this year alone. And the lion's share of the gains in 2013 has been multiple-related, where the 12-month forward price-to-earnings ratio has expanded to 14.7 times, up more than two points for the year (that's worth over 200 points on the S&P 500) and above the average of the past decade of 14.1 times," he said.

Mr. Rosenberg also pointed out this classic contrarian indicator: the press is highlighting the bull market on the front pages. Today's example: The Wall Street Journal has an A1 story with the headline "Stocks Regain Broad Appeal."

Indeed, data certainly prove Main Street investors are getting in on the action – and that in itself can be a bearish sign given that they often arrive late to market rallies and end up buying high. Retail inflows into U.S.-based equity funds have hit their highest levels since 2004. And Mr. Rosenberg points out that sentiment surveys have reached bullish extremes as well: the American Association of Individual Investors' latest survey shows the number of bulls outnumbering the bears is now at the high end of its three-decade range.

"So while there are reasons to be constructive on the equity market in the long term, the near-term challenges should not be readily dismissed," he concluded.

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