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Doug Kass: 4 Reasons Rally Comes to Screeching Halt

Bulls must be driving bears to drink. The stock market’s five-month surge has now driven the S&P almost 27 percent higher.

The seemingly unstoppable march uphill has all but confounded those calling for a correction.

Strategic investor Doug Kass, president of Seabreeze and CNBC contributor, is among those bears convinced the bulls are running with blinders.

”There’s simply no fear – the market is like a freight train with its intensity and unrelenting drive,” he says during a live interview on CNBC’s Fast Money. And he thinks the train may be about to jump the tracks.

Here are the catalysts he expects will eventually send the market tumbling.

Submerging Markets - Kass believes that we’re seeing a clear break down in the EEM and says historically it’s been a harbinger of weakness in the American markets. “We’re seeing a great deal of outflows. If the emerging markets are the world’s economic drivers why are investors fleeing?”

Geopolitical Mess - The markets are simply ignoring the messy situation in Egypt, according to Kass. “I don’t see any easy solution to the spread of rioting." And even when the dust settles he says “the new government of Egypt won’t be a Jeffersonian democracy.”

Raw Materials Inflation - Kass feels investors are ignoring the impact of higher input prices on profit margins. “Those that think that input costs can be passed on are a little too optimistic.”

Rising Interest Rates - "The rate of the rise in bond yields may be nearing a tipping point," Kass says.

He's also concerned about "the regular pattern of lower futures in the morning followed by strength in the afternoon. We really have to watch to see if the train is going off the tracks."

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Kass isn't alone in his call. Other bearish strategists have pointed out the weak volume as a negative sign for stocks. On Friday only 7.7 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's daily average of 8.47 billion.

The volume "suggests the (potential of) waning interest and a narrowing of the market," says James Gaul, portfolio manager at Boston Advisors LLC in a Reuters interview.

* As you may know Doug Kass is widely followed for his market timing - he correctly called a bottom last summer and also predicted the crisis lows in March 2009.




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Trader disclosure: On Feb 11, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Seymour owns (AAPL); Seymour owns (BAC); Seymour owns (F); Seymour owns (INTC); Seymour owns (QLGC); Seymour And Segem Asset Management Own (TTM); Weiss owns (FAS); Weiss owns (JPM); Weiss owns (IPI); Weiss owns (AGU); Weiss owns (AAPL); Weiss owns (QCOM); Weiss owns (MSFT); Weiss owns (CSCO); Weiss owns (HK); Weiss owns (DVN); Weiss owns (COP); Weiss owns (SMCI); Weiss owns (PZN); Weiss owns (VZ); Weiss owns (MRK); Adami Owns (AGU); Adami Owns (C); Adami Owns (GS); Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Adami's wife works for (MRK); Terranova owns (VRTS); Terranova owns (C); Terranova owns (UPL); Terranova owns (GM); Terranova owns (PEP); Terranova owns (APA); Terranova owns (CVI); Terranova owns (SU); Terranova owns (CNQ)

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