Playing the market right now is like living in a chocolate factory in Disneyland, quips stock and commodities trader Jeannette Schwarz Young, author of the Option Queen Letter.

Three weeks ago, she notes, everyone was anticipating new lows. No more. Today, all eyes are pointed skyward as investors seemingly expect the major averages to go to the moon.

She’s right. Clearly, bulls rule the roost. The reasons are pretty obvious – a peppier economy, low (but rising) interest rates, another four years of a pro-business White House, a leveling off of the rise in oil prices, some impressive earnings numbers, and big cash reserves on the sidelines to fuel a sizable market advance.

Clearly, too, greed and no fear are back in fashion. As a result, the S&P 500 jumped about 8% in recent weeks to a three-year high, which is inducing gung-ho investors to pour money into American equity funds at an estimated rate of $500 million a day, the highest inflows since April. Likewise, the latest figures show 70% of all investment advisers are now bullish.

It all suggests a good shot at sustaining a remarkable trend, which, during the last century, has seen stock prices turn in a double-digit increase in every single year ending in a “5.” Don’t ask me why it happens, because no one I know can explain it. It’s just one of those market enigmas.

In any case, money manager Steve Goddard, for one, doesn’t buy the unbridled enthusiasm. Mr. Goddard, president of the London Co., a Richmond, Va.-based investment firm with $250 million of assets, contends “the market is certainly not undervalued” and adds “if you’re out of stocks between now and a year from now, I doubt you’ll miss anything.”

Well then, if the market is not undervalued, then it surely must be overvalued. How does he figure that? He cites two yardsticks. One, Mr. Goddard explains, is the measurement of the market capitalization of all exchanges as a percentage of GDP. Usually, they trade at around par. During the last 50 years, the market cap has traded at an average 85% of GDP. And during the last 15 years, it has traded at about 110% of GDP. At present, the market cap trades at 138% of GDP, the highest level since the late 1990s-early 2000 bubble period. Likewise, the S&P 500 historically trades at 15 times the following 12 months’ projected earnings. At present, it trades at about 18 times future earnings.

The most overpriced areas of the market, as he sees them, are energy, small cap stocks, and technology.

The intense level of selling by corporate insiders is viewed by Mr. Goddard as another highly cautionary note. The rule of thumb, covering the last five years, is that insiders, reflecting the heavy issuance of options, sell $19.13 worth of stock for every dollar’s worth they buy. A sell-to-buy ratio of below $12-to-$1 is thought to be bullish, while over $20-to-$1 is said to be bearish. For the past two months, insiders have been unloading stock at a ratio of $24-to-$1.

Mr. Goddard also thinks investors are not paying attention to such worrisome factors as the rapidly rising trade and budget deficits and surging consumer leverage.

Bill Miller, the well-regarded manager of the multibillion-dollar Legg Mason Value Fund, also has some concerns even though he sees higher stock prices next year. Speaking at a recent New York investment conference sponsored by Columbia University, Mr. Miller said he didn’t think company fundamentals were very strong right now. Likewise, he didn’t believe we’re in the midst of a long bull market because valuations weren’t low enough.

At the beginning of previous bull markets, such as in 1982, he noted, valuations started at very low levels and interest rates were due to fall. Neither of these conditions is prevalent now, leading Mr. Miller to conclude that P/E ratios probably won’t expand, and thus, stock prices can only rise as fast as earnings growth over the longer term.

(Historically, earnings have grown about 6% a year, and earnings per share have grown more slowly than that because of the issuance of new shares.)

Ms. Young, noting that the market is rampantly bullish, but bullishly overbought, thinks it can still go higher over the short run.

Her reasoning: Many people who missed the recent rally will now come into the market, hoping to board a speeding train.

Still, Ms. Young views the current euphoria as being on borrowed time and predicts that the present rally will peter out in January and be followed by about a 10% market decline by March.

There are a number of disturbing factors to worry about, she said. Chief among them: The dollar is going down, interest rates are going up, and 2004 is stealing business from 2005 because of tax advantages from buying this year, rather than next year. “We’re also seeing a hangover from the late 1990’s bubble,” she said, noting that “loads of bad stocks are going up, notably those of companies with poor or no earnings and very little growth potential.” Adds Ms. Young: “When you see your dogs looking better and better, you know there’s a lot of hot air in this market.”

The bottom line: Beware of what could be another sucker’s rally.