Dow to Tumble Near 4200-5000 by Mid-2011: Strategist

Following Monday's market rally, stocks opened lower Tuesday as gold soared. Which way are stocks headed? John O’Donoghue, head of equities at Cowen; Kevin Cook, market analyst at Peak6 Investments; and John Lekas, chief executive and portfolio manager at Leader Capital, shared their outlooks.

“The sovereign debt crisis is not over—it’s going to continue for many years—but I don’t think it will derail the global recovery,” Cook told CNBC.

He sees the S&P trade in a range of 1,140 and 1,240 this summer, but expects the index near 1,300 by year-end.

“I’m definitely a buyer of the broad market andquality stocks on the pullbacks,” Cook advised. “We’re still in the early innings of a cyclical recovery.”

Meanwhile, Lekas said he is still worried about the sovereign debt crisis in Europe. He likened the $1 trillion emergency rescue package from the ECB to "feeding an alligator breadcrumbs."

The “real story” that investors should focus on is the Libor*, he said, as it's moved from 80 basis points to 110 in the last two months and is likely to rise further.

“That’s going to put a lot of pressure on the U.S. government to have to compete with that rate and will probably push the treasury rates higher.”

Lekas also said he sees the Dow falling near 4,200 to 5,000 by the second quarter of 2011.

“This is a short-covering rally—you should be taking advantage of it—and the VIX is back in full force,” he warned.

In the meantime, O’Donoghue said investors should look into “very high quality” companies such as Philip Morris [PM  48.095    -0.255  (-0.53%)   ].

* Libor: London Interbank Offered Rate