Go figure: Two of the three cardinal rules of investing in the stock market are flashing radically opposing messages. One emphatically says buy; the other, equally emphatic, says sell. It’s enough to drive anyone up the wall.

One rule: Don’t fight the trend, which at the moment is clearly exuberant. This rule is signaling a further rise in stock prices after a robust 2006 that many expect to end with full-year gains of roughly 15% in the major averages. The message, therefore, is stay invested in stocks and look for opportunities to fatten your equity holdings.

The second rule: Beware of the crowds at extremes, especially when they’re extremely optimistic, which is currently the case. Wachovia Securities’s chief investment strategist, Rod Smyth, figures the current level of optimism is about an eight on a scale of one to 10.

The signs of such optimism are everywhere. Investors Intelligence, which monitors the sentiment of leading investment newsletters, reports that nearly 60% are bullish, the highest percentage since December 2005. About 21% are bearish, the lowest level since last January. The message: Buyer beware when bull fever is so rampant.

Another rule: Don’t fight the Fed, which is an irrelevant issue at the moment because Ben Bernanke & Co. is presently neutral (not hiking interest rates or lowering them).

So, what’s an investor supposed to think?

Mr. Smyth, for one, believes the bull market is alive and well, as evidenced by the breakout in some key averages to either new or multi-year highs. Still, he tells me, “the risks are going up because everyone is so optimistic.”

On the plus side, he notes that investor confidence in a soft landing is very high, as evident by the fact that the difference in yields on corporate and Treasury bonds is consistent with a healthy, growing economy. Still other pluses: The S&P 500’s price-to-earnings ratio, based on trend earnings, is breaking out into new cyclical highs; the price-to-earnings ratio on the S&P’s small cap stock index is above that of the large caps. This is a rare occurrence and implies a high tolerance for risk.

Wall Street veteran Fred Dickson, who sets investment strategy at Northwestern regional brokerage chain D.A. Davidson & Co. of Great Falls, Mont., and is its chief investment strategist, will soon be headed to New York City for a series of interviews with the financial press.

Usually, he’s bullish, but not so now. For the near term at least, he has joined the brigade of worry-warts. “We’re telling clients to hold fast, but to keep their seat belts tight,” he says.

In effect, he’s warning of a market hangover in early 2007 after this year’s binge.

Mr. Dickson, a former strategist at Goldman Sachs, says he expects January — and, in fact, the entire first quarter — to be a “downer” on the order of a decline of 5% or less.

(The first quarter is traditionally a winner for the market. As measured by the S &P 500, the market over the past 18 years has averaged about a 2.2% gain in this period, with January the top performer of the three months, showing an increase of 1.34%.)

Explaining his rationale for a poor kickoff to the new year, Mr. Dickson points to the following:

• Growing concern about fourth-quarter earnings (which will begin to be reported starting in mid-January.)

• Holiday shopping not coming through as strongly as expected.

• Warnings from cyclical industrial companies. (FedEx, for example, recently offered earnings guidance for its upcoming quarter that was 20% below what Wall Street had expected.)

“FedEx may be indicative of a trend,” Mr. Dickson says. “The economy is indeed slowing and it looks like analysts’ fourth-quarter revenue and earnings estimates are too high.”

Another potential land mine for the market centers on what he sees as Wall Street’s expectation that the Fed will lower interest rates. However, he doesn’t see a cut until the second quarter at the earliest. The Fed, he points out, will require more time to study inflation trends, which he expects will remain volatile (as seen by November’s 2% jump in wholesale prices, the highest monthly increase in 32 years).

The strategist tells me he senses growing nervousness among investors and sees the possibility an increasing number of them could seek to lock in gains, putting near-term pressure on the market.

Looking a year out, Mr. Dickson sees 2007 as an “up year,” with a possible down first half as the economy struggles with a soft landing, and a likely second half upturn timed to begin with a Fed rate cut. Overall, he says he thinks returns will be more modest and disappointing versus those of 2006.

Health care, technology, and energy are viewed as the new year’s top-performing sectors, while industrials, materials, and consumer cyclicals (housing, retailing and autos) are thought to be less solid. Mr. Dickson also thinks the emerging markets should also be an integral part of investment portfolios, notably India, China, Brazil, and Russia, and principally through exchange-traded funds.

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