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The Stock Market: A Ticking Time Bomb In Disguise

|Includes: Apple Inc. (AAPL), CMG, KO, UTX, VZ

The market appears to have found it's way back into bull territory after almost two weeks of plummeting around 400 points per day. Now that the bulls are in control, the question is if they can stay in control. You have to ask yourself, is this just a short break from a market crash that could be similar to the crash of 2000? When should investors begin to take advantage of lower prices? Is investing right now really worth the risk?

The market's recent volatility has led investors to believe that they can either make it big, or lose it all. It is difficult to tell whether the market is ready to start climbing again or if it is just taking a break before plummeting once more. In my opinion, the market isn't done falling. I know that's not what you want to hear, unless you are a bear.

One reason I believe the market will head further south is because the last few days of uptrend have been way too steep. The market is rising so quickly, it almost feels as if it is in a short-term bubble of denial, ready to pop. After surging up to 300 points in one day, and dropping 400 points the day before, it is safe to say that the market is not back on it's feet yet. The market has not yet leveled out to a point where it can slowly climb upwards gradually and securely.

Some investors also argue that recent earnings reports from major companies have helped turn around the market, such as Apple AAPL, United Technologies UTX, Verizon Communications VZ, Coca-ColaKO, and Chipotle Mexican Grill CMG.

Take Hugh Johnson, chairman of Hugh Johnson Advisors, for example. He recently sat down with CNBC's Kate Gibson to comment on the markets correction.

"The stock market in late September was 4 percent overvalued and optimism was widespread; everybody knew corrections occur and we were overdue. Of course when they do happen it really shakes our confidence. We moved from being 4 percent overvalued at one point in time to 8 percent undervalued, so pessimism started to take over. We went from conditions that were bad for stocks to conditions that are good news for stocks,"Johnson said.

Johnson may have a point. Even so, I still believe the market is more likely to head down. Just look at S&P 500 earnings. It doesn't look like they will be as strong as so many investors had expected. IBM, for instance, recently announced very poor Q3 earnings.

Another warning flag? It's unlikely that most companies can maintain the kind of high profit margins they now have. If they fall, stocks, too, are likely to fall.

Disclosure: The author is long AAPL.