“Call an ambulance,” a trader told me. “You’re going to see bleeding all over Wall Street, maybe a 300-point drop in the Dow over the next couple of days.”

That was what the trader expected the market’s immediate reaction would be to the recent terrorist activity in London and Scotland. As it turned out, he was dead wrong; the Dow ran up 167 points in the following two days. To the bulls, the gain was another unmistakable sign that stock prices are headed higher. They’re sticking to this view even though an increasing number of worrywarts are coming out of the woodwork, pointing to what appear to be legitimate concerns.

Chief among them:

• The current rise in interest rates.

• The threat of still higher rates combined with rising inflation, fueled by a strong global economy.

• The impact on the debt market of subprime mortgage exposure.

• Considerable skepticism about the many forecasts suggesting the housing slump has hit bottom.

• Fears that the latest terrorist actions could be a harbinger of things to come in America.

“How can you not be nervous?” a trader at the New York Board of Trade, Jeanette Schwarz Young, asks. “Everybody is so bullish; like the early 2000s, we’re back again in La-La land.”

Many investors seem to be convinced, Ms. Young said, that stocks are never going down, which is similar to the exuberant view they held last year when they thought real estate was never going down. “We’ve entered a very speculative stage,” she said. “A year ago, people were flipping condos; today, they’re moving money into anything called a hedge fund. It’s like they can’t get enough of hedge funds, like they couldn’t get enough of condos.”

Of immediate concern to Ms. Young is that money is really starting to get tight. At first, this tightness was felt in the subprime mortgage market, but now, she notes, it’s extending to the regular mortgage market. This trend, she fears, could easily spread to the mergers and acquisitions arena, whose outburst of deals has been the chief catalyst for this year’s rising market.

“I absolutely would take some money off the table and put in protective stops,” Ms. Young said, referring to specified prices at which stocks should be sold. “Volatility is increasing, inflation is unquestionably on the rise — just look at food and energy costs; Middle East tensions are worsening, and it’s becoming more difficult for many stocks to move ahead, all of which means it’s time to think about preservation of capital and not about the next hot stock.”

As Ms. Young sees it, “we haven’t had a 10% correction in a long, long time, and I think we’re now nearing that stage.”

The skipper of New York’s Balestra Capital, Jim Melcher, also takes a dim view of the market.

“Wall Street is psychotic, no, change that to ‘delusional,'” he said. He ties this observation to the fact that stocks are up strongly even though the credit markets have become more vulnerable to a major downturn.

“It’s hard to imagine,” he said, “that Wall Street thinks the stock market can withstand a downturn in the bond market,” excluding Treasuries.

Mr. Melcher, who manages some $250 million of assets, is up about 25% this year, due largely to a short position in mortgage-baked securities, which he says may be approaching a state of collapse. He expects the stock market — which he currently rates as “dangerous” — to reverse course and drop 10% or more before year’s end.

“If I was an average investor, I would become much more cautious, cut my exposure to the stock market by a goodly amount and move into Treasury bonds,” he said.

Many pros say the subprime mortgage debacle is contained, but Mr. Melcher says he thinks otherwise, noting it’s already having an impact on other areas of the debt market, such as corporate bonds, junk bonds, collateralized loan obligations, mortgage-backed securities , and emerging-market debt. He cites as examples such worrisome signs as the tightening of terms on some proposed bond offerings and the cancellation of some leveraged buyout deals.

The way subprime mortgages are impacting the rest of the bond market and the economy in general, he said, “there’s a good chance we may already be in a recession.” Surprisingly, Mr. Melcher concludes, the stock market seems oblivious to what’s going on.

Meanwhile, the vigor of the market is even worrying Wall Street superbear Richard Russell. Questioning how long stocks can continue to rise, the veteran editor of the Dow Theory Letters, who turned bullish in early May, seems to be having some second thoughts.

“The market is very over bought,” he now warns subscribers.