"Never before has there been a bull market with such broad participatio n. This is not a good sign. God forbid what happens when the chickens come home to roost"

INVESTMENTS

The battle of wills between the bears and the bulls on Wall Street gets more fascinating by the week. If one defining characteristic of a bull market is that it is able to shrug off bad news, then this weekend the bull market in New York - and with it the hopes of those who think the London stock market should follow it higher - must be diagnosed as being still very much alive.

On Tuesday last week, the US stock market wobbled badly in the morning, falling 50 points in barely an hour, led down by the same technology stocks that have led the market higher for most of the past 10 months.

It was enough to prompt renewed fears that this bull market is finally on its last legs, after a run that has carried it up by a good 25 per cent so far this year.

As I have noted here before, traditional valuation measures on Wall Street are already at their lowest levels for years. The dividend yield is at levels last seen before the 1929 and 1987 crashes. The market overall is selling on a price/earnings multiple of 17. The historical average is 13 times earnings - which means the current rating can only last as long as profits keep rising strongly.

This will only happen if the economy continues to pick up sharply after its summer pause. This, to judge by the available evidence, is still probable - but the margin for error at the current market levels diminishes daily.

No wonder Wall Street analysts are so frantically poring over the latest earnings figures for clues about the trend in profits growth.

Small wonder, too, that it should be earnings figures from a technology company, this time Motorola, that sent technology stocks and the market as a whole into its wobble last week.

The odds must be that it will be a profits warning from a big US company that finally prompts Wall Street's correction when it comes - that is, if it is not precipitated by an unexpected move by the Federal Reserve on interest rates instead.

It would be astonishing if Alan Greenspan, the chairman of the Fed, was not now becoming exercised by the emerging signs of overheating on Wall Street.

It would matter less if other traditional warning signals were not also now flashing so heavily. The American private investor has never had so much money invested in mutual funds. Many fear that if markets do start to fall, there could be a panic as they all rush to unload their holdings.

Listen, for example, to Barton Biggs, Morgan Stanley's chief global strategist, and one of Wall Street's most respected thinkers. ''Never before has there been a bull market with such broad participation," he says. "This is not a good sign. God forbid what happens when the chickens come home to roost.''

But just as the market was able to shrug off its last wobble back in July, when technology stocks were also at the centre of the action, so it seemed to have recovered most of its poise by the end of the week. And there are still plenty of highly paid Wall Street pundits who reckon that the market has higher to go still. Among them are well-known market watchers in the US such as Abby Cohen of Goldman Sachs and Elaine Gazarelli, both of whom expect better things, at least for the next few months.

The cause of the bulls can only have been heightened by news that Joe Glanville, a vaudeville character who commanded great influence over Wall Street in the early 1980s with his loud and vigorous views on the direction of the market, is suddenly back on the scene arguing the opposite way. In the weekly stock market newspaper Barron's a fortnight ago, he said there is every chance of a 1929-style crash happening again - and it will happen ''before the end of November''.

Now, normally it is the safest of safe bets that what Joe Glanville thinks is the exact opposite of what is going to happen. His record as a market pundit is unrivalled, but only for its inaccuracy. Studies of the performance of the thousands of stock market newsletters in the US in recent years demonstrate convincingly that his record is abysmal. Anybody who followed his advice would be seriously out of pocket by now.

But, as in life, so in the stock market. Every dog has his day, and maybe even Joe is about to strike lucky. One nerve he has clearly struck is the anxiety the month of October creates among investors.

In both 1929 and 1987 it was in October that the infamous crashes happened. In 1989 and 1990, it also fell sharply in the month. What's more, when the big crashes did come, they followed precisely the same kind of unrelenting upward movement for many months that we have seen this year.

In a business as easily spooked as the stock market, folk memory counts for a lot - and you can be sure that if a big correction does occur this month, it could easily slip over into something worse, as investors compete to outscare each other with tales of what horrors lie ahead.

At the moment, however, optimism remains the order of the day. Any risk that the US might be flirting with recession appears to have passed, and American industry - having picked itself up by its boot straps five years ago - is now going through one of its most gung-ho phases.

If it lasts, it may even do some good for Bill Clinton's prospects in the next presidential election.

Those who think Wall Street has shot its bolt must contend with the mounting evidence that the economic and political cycles are now firmly back in sync.

They went badly awry in 1992, when the last recession effectively did for former president George Bush. The market may be at scary levels, and will have its long-overdue 5-10 per cent correction soon. But the re-emergence of Joe Glanville has persuaded me that there may still be one more leg to this bull market after all.