Is it time to ride that bull market?

Shall we all take money out of the bank, money market fund, or bonds, and get aboard the stock market bandwagon? Why not? In the past six months the top 20 gainers on the New York Stock Exchange doubled or tripled, while the losers declined on the order of 25 percent, with a few exceptions. Isn't the upward trend clearly established with gains of 200 percent, even 400 percent, among Amex and over-the-counter winners?

Wouldn't we like to know! But if we all acted in unison the market would eventually self-destruct.

The recent 60 percent rise in the Dow Jones industrial average happened fast, beginning last Aug. 12, when Henry Kaufman, the Salomon Brothers economist, changed his mind about the direction of interest rates. They were headed lower instead of higher, he said. This was the catalyst the market needed to begin its upward trend.

Buying and selling of stocks has become increasingly dominated by financial institutions - pension funds, endowments, insurance companies, trust departments , and the like. They were quick to buy once the market began its move. Most professional money managers live in a world of intense competition. Their performance is measured quarterly, even monthly, and if one of them appears at the bottom of the class, he risks losing his $25 million piece of the XYZ pension fund to another manager whose recent performance has been superior.

This ''blowtorch'' atmosphere leads to an intense fear of being left behind, of not having enough stocks in a bull market (or too many in a bear market).

The bulls point to the turnaround in the economy, the sharp reduction in inflation, the drop in interest rates, the vast reserves of cash in money market funds and bank certificates. These factors and the strong momentum of the market itself portend even higher prices, as the recovery gathers steam and corporate profits expand dramatically.

The bears, on the other hand, call attention to a $200 billion budget deficit likely to rekindle inflationary fires, the likelihood of higher interest rates, the high level of unemployment, and the continued decline in corporate profits as omens of a reversal of the market rise.

Other concerns are the sharp increases in price-earnings ratios for growth stocks in fields such as computer software, health care, and genetic engineering. The theory is that a company compounding earnings growth at 25 percent a year certainly justifies a premium multiple.

The theory is sound, but in practice its devotees can get carried away. Consider Policy Management Systems Corporation (PMSC), a South Carolina software company serving the policy and casualty insurance industry. Its record is enviable, with earnings growing at 40 percent a year and likely to continue because of the quality and cost efficiency of its products and its low market penetration.

Last year PMSC earned $0.85 a share. In 1983 estimates center around $1.20. At 60 it sells at 50 times its 1983 earnings estimate. The 1983 multiple for the Dow Jones industrial average is around 12. If PMSC seems high, there is no assurance that even higher multiples don't lie ahead.

Temporarily sharply higher prices may well lie ahead for PMSC, or Home Health Care Corporation of America, or Genentech. Such was the experience of the 1971- 72 bull market, during which multiples of 50 were common. Polaroid, Avon Products, and Walt Disney were all in the stratosphere. But by 1974, all three had declined 90 percent in market value.

My own view is one of optimism tempered by caution. It's traditional for stock prices to move well in advance of a business recovery, and leading indicators suggest that recovery is well under way. A market correction is expected, to be followed by a resumption of the trend toward higher prices. One of the Wall Street phenomena I've observed is the ability of prices to move much further (in both directions) than logic might justify.

But unless you're ''indexing'' your portfolio (duplicating the market averages), it's still necessary to make wise stock selections - companies with strong fundamentals and improving profits. And if they don't yet happen to have been discovered by the institutions, you'll do even better.