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Hedge fund manager Tepper is 'on guard' toward the market

Hedge fund billionaire David Tepper, who may already have signaled in a recent filing that he is less bullish on markets, is now "on guard" in his approach to trading, according to someone familiar with the matter.

Tepper, whose Appaloosa Management has roughly $19 billion in assets under management, is neither too long nor too short, this person told CNBC — and the fund manager thinks the biggest risk to trading stocks in the U.S. right now is attempting to "out-think the market." If investors don't like what they're seeing as the S&P 500 and other indexes hit repeated all-time highs, they should put some money in cash rather than going too short, the source added.

Tepper believes that valuations, while on the high side, aren't overly rich in many tech and blue-chip stocks, added the person, and that central bank stimulus, which has distorted bond markets around the world already, may be starting to affect stock markets as well. The message from Tepper, who in May of 2014 jarred markets by warning "don't be too frickin' long" when the S&P was at 1,889, could be summed up as "don't be too frickin' short either," this person says.

David Tepper
David Orrell | CNBC
David Tepper

At midday on Monday, the S&P was trading in the 2,190 range. U.S. stocks were at record highs, with the three major indexes all rising.

Tepper's flagship fund is up slightly so far this year, the person added. The average hedge fund in the HFR Composite index is up about 3 percent.

A securities filing released Friday and based on stock positions held as of June 30 showed that 2.7 million call options — or the right to buy S&P ETFs in the future — that Appaloosa had held in the first quarter were no longer part of the fund company's portfolio. That absence suggested that perhaps Tepper had grown bearish or at least more neutral on the markets.

However, the 13F filing does not show whether those options were exercised or simply expired, as opposed to being sold, and it isn't clear what counter-moves Appaloosa may have made since the end of June.

The hedge fund manager's opinions are closely watched on Wall Street, and he has the ability to move markets with his observations on stocks.