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Stocks: What goes up must come down?

January 31, 2013: 11:49 AM ET
Stocks, much like the apples that plonked Sir Isaac Newton on the head, eventually will have to fall.

Stocks, much like the apples that plonked Sir Isaac Newton on the head, eventually will have to fall.

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

Investors are giddy. The Dow and S&P 500 are near all-time highs. Don't ask about the Nasdaq though. (It's kind of like mentioning "the war" to the Germans on Fawlty Towers. Still a sore spot for many tech investors.)

But even though there are compelling reasons why the market could keep heading higher for awhile, investors should start to feel more afraid than excited.

Related: Why aren't investors scared?

Here's a cautionary tale. Only two stocks in the Dow are down so far this year. One is Boeing (BA). But it's only off 1% and it's obvious why the stock has taken a hit: the 787 Dreamliner flaming battery issues.

The other stock that's in the red, even though the Dow is up 6% (in one month!) and flirting with 14,000? Bank of America (BAC). It has fallen more than 2%. Not drastic, but worth noting considering that the rest of the market is acting like it's juiced on deer antler spray.

Now here's the thing. Bank of America isn't down because of any significant problem the way that Boeing is. BofA has pulled back because its fourth quarter earnings, while good, were not great enough to live up to the market's lofty hopes. BofA shares more than doubled last year.

Bank of America was the best performer in the Dow in 2012. But it's started to pull back as the rest of the market continues to climb.

To keep climbing, the bank will have to prove to investors that all of its legal problems are behind it and that its balance sheet is now squeaky clean. Not yet.

When stocks go on insane tears over a short period of time, it gets tougher and tougher to satisfy the short-term demands of Wall Street. To quote Sir Isaac Newton's line about the apple falling from the tree: What goes up must come down.

Speaking of that Biblical forbidden fruit, Apple (AAPL) has clearly become a victim of its own success as well. It's preposterous to assert that the company is in trouble but investors clearly are disappointed that growth is not as strong as it was just a year ago. And Facebook (FB) is struggling to live up to Dickensian Great Expectations today, even though the social network reported profits and sales that topped forecasts and incredibly strong growth.

When you take a look at some of the top performers in the S&P 500 this year, you have to wonder just how much higher these companies can go before pulling back ... especially since many of them still have long-term question marks regarding their fundamentals. Staples (SPLS), Chesapeake Energy (CHK) and Morgan Stanley (MS) are all up about 20% in January?  Netflix (NFLX) up 75%?

Related: The 'dumb' money may not be so dumb

Momentum is fickle. It's a word that rhymes with ditch. And it can turn on a dime. Just look at Research in Motion (RIMM).

Shares of RIM, which will soon change its name to BlackBerry and its ticker to BBRY, had skyrocketed in the months leading up to yesterday's launch of its long-awaited BlackBerry 10 operating system and the two new phones that will run on it. But all of a sudden, sentiment went from extremely bullish (It's going to save the company and make them a market leader!) to decidedly bearish (The Z10 isn't that cool. Same old BlackBerry).

RIM shares fell 6% Thursday and have plummeted nearly 30% just this week! But despite the BlackBerry bloodletting of the past few days, the stock is still up about 10% year-to-date.

So what does this all mean? I'm not predicting an imminent end of the bull market and the start of an awful bear run like the one we had in 2000-2002 or 2008. But investors have to start preparing for the possibility that the market will, at the very least, cool off.  CNNMoney's Fear & Greed Index has been in Extreme Greed territory all year. That is not sustainable.

With the average investor once again flocking back to the market, we need to watch what's happening to BofA and Apple and remember that all stocks are subject to the same whims of Wall Street. I know Radiohead's Thom Yorke wasn't singing about the market in "Fake Plastic Trees." But a line from that mournful tune sums up my thoughts on this parabolic market best.

Gravity always wins.

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Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

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