Halloween could turn into a horror show if Wednesday’s significant market disclosures are disappointing. That’s the day we get our first look at the third quarter’s economic numbers and word from Ben Bernanke & Co. on the direction of interest rates. Let’s say we get some Halloween goodies, namely that growth in the gross domestic product runs 3% or higher and that the Fed, as widely expected, cuts the fed funds rate by 25 basis points, following last month’s reduction of 50 basis points.

If these positive scenarios play out, stocks could well pop. But think twice about nibbling away at the market if they do, though, because those Halloween goodies could be bad for your financial health.

That’s the warning from several worried pros, who contend the smartest market strategy right now is to sell on any rally, not buy. One is a Hong Kong money manager, Selwyn Ortz, who tells me: “It’s the wrong time to chase rainbows. There’s no pot of gold out there, just a pot of potential losses.”

Mr. Ortz, a principal of HK Investments, Ltd., lambastes those bulls pushing investors to get more aggressive in the market, insisting the worst is over and that all the bad news is well known and already reflected in stock prices.

“It’s okay for the bulls to read about Rip Van Winkle,” he quips, “but it’s another matter to snooze with him, since any sensible analysis of what’s happening now would show problems getting worse, not better.”

In particular, he takes note of the worsening housing slump, the unresolved subprime crisis, weakening American economy, and prospects of numerous fourth-quarter earnings shortfalls. He also cites the likely impact of America’s credit woes on global economic growth and an economic slowdown in Europe. Mr. Ortz, who expects the Dow to close the year below 13,000, also fears the impact on global markets of any American military action against Iran. “People in Washington tell us it’s 50–50 and it could just be months away,” he says. If it happens, he believes that Iran would retaliate and the world markets could immediately be slammed with losses of 5% to 7% and maybe even as high as 10%.

It’s why, he explains, his American equity holdings are at the lowest levels they’ve been all year. “The Street,” he notes, “thinking the worst is over, is pushing financials and homebuilders again, and we’re shorting them because their downside over the next six to 12 months looks considerably greater than their upside.”

Over the past four weeks, many enthusiastic investors, apparently also convinced the worst is over, have gone on a spirited buying spree, snapping up about $8 billion worth of American stock funds, according to liquidity tracker TrimTabs Investment Research of Sausalito, Calif.

The CEO of TrimTabs, Charles Biderman, views it as an $8 billion blunder. He finds that liquidity trends have recently turned sour, noting in particular a sharp slowdown in newly announced buybacks; a $50 billion reduction coming out of real estate (reflecting fewer refinancings and shrinking home values), which is bound to slow retail sales; a major reduction in tax withholdings, and slowing wage growth.

Mr. Biderman, pretty much bullish since late 2004, has turned quite cautious. “We’re in a market correction, and how long and deep it lasts is anybody’s guess,” he says. “In my own personal portfolio, I’m taking money off the table, and that’s what investors should do now, as well.” A former strategist at Goldman Sachs, Fred Dickson, who sees a 3% to 5% market decline over the next two to three months, voices similar thoughts. “I would keep my seatbelt fastened, do some tax-related selling now, and take profits in the emerging markets where we see a lot of risk,” he says. He’s particularly concerned about the EM risks in Brazil, Russia, India, and China.

Rapid earnings deterioration is currently the overwhelming concern of Mr. Dickson, the chief investment strategist of regional brokerage biggie D.A. Davidson & Co. in Great Falls, Mont. He notes that Wall Street analysts, perpetually high in their earnings estimates, had expected third-quarter profit gains, as measured by the S&P 500, of about 3% to 5%. The actual windup, he figures, will be flat to minus 3%.

For the current quarter, analysts project 10% earnings growth, versus a year ago. When reality sets in, Mr. Dickson says, he reckons they’ll adjust to the slowing economy and knock down their estimates to about a 3% earnings decline.

So what’s the best way to play the market? Our worried strategist, who declined to specify individual stocks, thinks the focus should be on large global tech names, health care, international consumer staples, and selected energy shares. By the same token, he would avoid homebuilders, major banks with big mortgage exposure, most retailers, and producers of big ticket consumer products.

It happens to all of us. A friend raves about a new restaurant and tells you that you must try it. So you try it and it turns out to be a dog. That’s essentially how our pros see the stock market.

dandordan@aol.com