Investor "euphoria" is taking stocks higher but eventually will be their undoing, market bear Marc Faber told CNBC.
The author of the widely followed Gloom Boom & Doom Report said the current rally, which has seen the Standard & Poor's 500 (^GSPC) gain more than 5 percent in 2013 and 12 percent since its November 2012 low, is getting tired and will run out of steam soon. (Read More Below the Video.)
"We are very overbought, but it is also possible that we have a mild correction in February and then a further increase in stock prices," Faber said on "Closing Bell."
He added it would be "something that would be similar to '87 where in the first half of the year until August the market went up by 41 percent (only) to lose 40 percent in months in October and November. So it's a possibility that we have a lot of volatility this year in equity prices."
Though he is more widely known for his dour outlook on stocks and the global economy, Faber occasionally has advocated for the U.S. stock market.
Now, though, he is unwinding his long positions.
(Read More: Dow Nears Record, but Is It Just Another Bubble?)
"I am selling shares at the present time. I am reducing positions because there is euphoria building up," Faber said.
Indeed, there are some signs that investors have amped up their bullishness.
Money flows to mutual funds that track stocks have soared to record levels of $55 billion in January, and sentiment surveys are showing a strong positive bias for equities.
(Read More: Are Mutual Fund Investors Really 'Dumb Money'?)
"There is a chance that corporate profits will disappoint in 2013. But, by the way, there could also be some geopolitical problems, he said. Faber said he recently returned from a trip the Middle East and it "is a boiling pot."
Faber continues to utilize gold as a large part of the portfolio and he does like mining stocks. He also advocated for foreign stocks, particularly the markets in the Ukraine, Vietnam and China.
Closer to home he likes miners but believes housing shares have rallied too much and are "ahead of the fundamentals."
"I buy gold because I'm fearful that we will still have a systemic crisis, that we will have wars and so forth," he said.
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