Should you play bear or bull with markets?

At the start of the week it looked likely that the Footsie would reach a new all-time high, topping the 6930 record achieved at the height of the dot-com boom in 1999.

But a 2 per cent fall in the Blue Chip index on Thursday put paid to that – at least for the moment. For investors who have enjoyed the near 100 per cent rise in the Footsie in the last four years the question rises: is it time to take profits?

No, says Mark Dampier of Hargreaves Lansdown, who writes our weekly The Analyst column. “I’m still bullish,” he said this week. “Even though the market came off strongly on Thursday, my view is that there’s a lot of cash waiting on the sidelines.

“I don’t think the UK equity market is overvalued. It can go further. The signs that I look for to show the current rally is coming to an end are things like wage rises, and we’re not seeing that.”

Brian Dennehy of Fund Expert has been a long-time bear, predicting that the Footsie would fall to 4000 rather than climb to record highs. This week he admitted he got that wrong.

“Our thesis for some time was that the UK stock market has been in a bear market since December 1999. That’s why we predicted falls in the Footsie,” he said.

“But we couldn’t anticipate several factors such as the Cyprus affair, and lots of money in banks flooding a range of asset classes.

“At any point we’re analysing markets to uncover a “most likely” path – and we always do this in such a way that if certain parameters are breached, we must be on another path. So as the facts changed, we’ve had to change our minds.”

But what now for markets? We’re into crystal-ball gazing territory, but Mr Dennehy has considered several scenarios including that there will be a continuing bear market, or even that a stronger bull market emerged in 2009 and is set to push the Footsie up to 10000 and beyond.

However, the most likely scenario, he now thinks, is that a new bull market began in March 2009 but is now nearing its end. “It could also represent the end of a much bigger stock market cycle stretching back decades that could lead to further 400 point upside in markets before the beginning of a new bear market.”

Other views? Patrick Connolly of Chase de Vere thinks taking some profits now could be a wise course. “While equity investors should remain in the market over the long term, there is a strong argument for taking some profits and rebalancing now,” he said.

“By doing this you are effectively selling at the top of the market and buying at the bottom. This is the holy grail of investing and something which very few investors achieve.”

Meanwhile Rebecca O’Keeffe of Interactive Investor favours a switch into emerging markets. She said: “It’s too early to be absolutely calling the top of the market, but for those who have made some healthy profits in the run up since the start of the year, a degree of redistribution into emerging markets may well prove to be rather astute.”

Chris Godding of Signia Wealth has a similar view. “Developed markets are due a correction of around 5 per cent, but the outlook looks good on a three-year time frame. Investors should look to emerging markets which offer a good entry point at current levels.

“Falling commodity prices may be bad for the top line in countries such as Brazil and Russia, but they relieve inflationary pressures for the emerging consumer in India, China and many other resource importers.”