There’s an old adage on Wall Street: “The most bullish thing a market can do is go up.”

I’ve always been amused by that particular tautology. Essentially, it means: Hey, just enjoy the bull market while you can.

My generally bullish stance, adopted a few weeks before the November 3 election, has been vindicated. The stock market hovers at all-time highs and optimism abounds. Coronavirus vaccines are finally getting administered, interest rates are scraping record lows, and the Democrats who control the White House and both chambers of Congress are working to pump more than $1 trillion into the pandemic-battered economy.

If I’ve been wrong about anything, it’s the astonishing speed with which biotech firms have developed viable coronavirus vaccines. I expected the process to take much longer. These new vaccines have been created in a miraculously short time frame. Kudos to the world’s scientists. President Biden announced Tuesday that his administration is close to procuring 200 million more doses of vaccines.

Fiscal stimulus is moving ahead rapidly as well. Even if the Democrats in the 50-50 Senate can’t get a filibuster-proof majority (60 votes) of Senators to agree to Biden’s ambitious spending plan, Senate Majority Leader Chuck Schumer (D-NY) has repeatedly vowed this week to push ahead anyway through “reconciliation.”

Reconciliation is an arcane legislative maneuver that requires a simple 51 majority vote, which means stimulus is nearly assured because Democrats control the Senate and at least a handful of Republicans can be expected to go along. Schumer’s message to the GOP: the stimulus train is leaving the station, with or without you.

As investors watch contentious deliberations in Congress, the market took a modest breather Tuesday. The Dow Jones Industrial Average fell 22.96 points (-0.07%), the S&P 55 slipped 5.74 points (-0.15%), and the tech-heavy NASDAQ was flat (0.00%). In pre-market futures trading Wednesday, stocks were mixed with the NASDAQ in the green.

Strong earnings so far from Big Tech barometers, e.g. Microsoft (NSDQ: MSFT) and its earnings beat after the bell Tuesday, are fueling bullishness. Corporate earnings are expected to post negative growth for the fourth quarter of 2020, but they’re exceeding expectations and operating results are on track to substantially improve in 2021.

Gross domestic product (GDP) growth also is projected to return to healthy levels in 2021, for both the U.S. and the rest of the world. The International Monetary Fund on Tuesday released its latest World Economic Outlook, which raised its projections for global economic growth by 0.3 percentage point to 5.5% for 2021, largely on the strength of coronavirus vaccines.

A warning sign…

But there’s one factor boosting the markets that isn’t tied to economic or financial fundamentals: the spike in options trading.

Options trading hit a record level of activity in 2020, with 7.47 billion contracts traded, 45% higher than the previous record reached in 2018. I’ve been keeping a wary eye on a technical indicator known as the put/call ratio. The ratio represents a proportion between all the put options and all the call options purchased on any given day.

Call options give you the right to buy the underlying security at a specific price on a specific date. Put options give you the right to sell the underlying security at a specific price on a specific date. You’d buy a call option if you’re bullish on the underlying stock. You’d buy a put option if you’re bearish on the underlying stock.

Generally, a lower reading of the put/call ratio reflects bullish sentiment among investors as they buy more calls, anticipating an upward trend. Conversely, a higher reading of the ratio indicates bearish sentiment.

When there are more open positions in puts than calls, the ratio is calculated to be above 1. The 50-day moving average of the ratio currently hovers at 0.40, the lowest level in about two decades (see chart).

To hedge their risk on a call options contract, brokerages buy a calculated percentage of the stock they would be forced to sell if the buyer profited on the bet. As the stock price rises, brokerages are compelled to buy more shares to maintain the balance of their hedges. This increased demand drives up share prices.

Watch This Video: Are Stocks About to Take the Elevator Down?

The upshot: the options market itself has become an accelerant for the stock market’s rise, regardless of basic fundamentals. High levels of speculation usually indicate that a market is reaching a peak.

The forward 12-month price-to-earnings (P/E) ratio for the S&P 500 is 25.3, which is above the five-year average (17.5) and above the 10-year average (15.7). You should stay invested, but also stay on your toes. You need to be selective.

A safe haven…

I should emphasize that options trading can open up a world of reliable alternatives to making money with stocks. In fact, options can be far less expensive than stocks and deliver greater profits in a shorter time frame.

However, if you’re risk-averse and options trading isn’t for you, consider the relative safety of dividend stocks.

I expect faster economic growth and continued stock price appreciation in 2021, but you should maintain a diversified portfolio that isn’t overly weighted toward momentum plays. We’re in a “risk-on” asset bubble and we’ll experience a few corrective dips later this year. An easy way to hedge your portfolio is with dividend-paying stocks.

Regulated, U.S.-based utilities stocks are good proxies for dividend growth. Utilities provide essential services, a factor that tends to insulate their shares from unexpected external shocks.

There’s a lot to feel good about this year, as we say good riddance to the dumpster fire that was 2020. But the pandemic and other risks haven’t simply gone away. For our list of the best utilities stocks to buy, click here now.

John Persinos is the editorial director of Investing Daily. You can reach John at: mailbag@investingdaily.com. To subscribe to his video channel, follow this link.