After climbing to a 13 month high earlier this week, the major indexes have fallen for three consecutive sessions amid worries about the economic recovery, the strengthening dollar, and the technology sector.

Does that mean the current eight month rally is beginning to wane? While new yearly highs are generally something to cheer about, there’s still an overarching fear that the current market run can’t last. If there’s one thing large cap, mid cap, and penny stock investors can agree on…it’s that they’re unconvinced this current upswing can continue.

Why? Many are skeptical of the markets overall foundation, considering weakness in employment, housing, and other key sectors of the economy. Do the skeptics have reason to be cynical or are they just covering their water cooler discussion bases?

Despite recent highs, the skeptics point to a growing number of economic contradictions, including fundamental and technical trends. While this does not necessarily mean they are selling their positions…they do contend that the recent moves in the major indexes are masking underlying weaknesses.

As one analyst noted, the markets may already be declining and the major indexes just don't know it yet.

Some penny stock investors and analysts believe the recent run up in the Dow Jones Industrial Average, the S&P 500 Index and the Nasdaq Composite is based more on financial market factors––a falling dollar, risk-based investing, near-zero interest rates––than on economic fundamentals.

Federal Reserve Chairman, Ben Bernanke said this week that although economic growth is likely, it is expected to be less robust than hoped considering credit flows are still constrained, economic activity remains weak and unemployment is much too high.

"The market is suffering from mixed economic news this week," said one chief technical strategist. However, he added, "the declines were surprisingly small considering the market's recent strength."

Is there a happy medium out there? Can we actually have a tempered bull market that cautiously takes the economic recovery in balanced stride? While investors may be betting on a strong economic recovery – they should be careful what they wish for.

There are those on Wall Street that say a strong recovery could thwart the rally should it lead to higher interest rates and waning government stimulus.

The U.S. government has spent nearly $1 trillion to stimulate the economy and the Federal Reserve has maintained a policy of keeping interest rates near zero. Those will disappear as the economy's health improves, potentially halting the bull market by taking away what has been its crutch — sources of cheap and plentiful money.

The Fed isn't expected to act soon though. The U.S. central bank has kept the target range for its bank lending rate at zero to 0.25% since December. It vowed this month to keep that rate at a record low for an "extended period."

In the good old days of economic prognosticating (2+ years ago), analysts were vehement about the markets direction in spite of any or all warning signs. Today though it seems that most analysts are content sitting comfortably on the fence – after all, a strong stock market does not necessarily indicate ongoing strength. Or at least not a market they’re willing to stake their reputations on.

Is the current bull market on a solid foundation or is it on shifting sand? No matter what your take is on the current rally, penny stock investors should heed the potential danger signs of today's market. After all, there’s nothing wrong with looking at Wall Street with a discerning eye.

Author's Bio: 

John Whitefoot is a seasoned penny stock investor with a keen interest in international business and current affairs. With many years of experience in the investment community, John Whitefoot is Sr. Editor at PennyStockInsider.com and is devoted to uncovering the news, trends, and ideas that affect penny stocks on a daily basis.