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Stocks at new highs; will drop follow?

Pras Subramanian

Another closing high for the S&P 500 (^GSPC) on one of the last weeks of the summer is not what most investors had expected. While low volume is the theme of the late summer, a new high for stocks isn’t something to dismiss out of hand.

But as we approach Labor Day and the start of fall, with money managers and traders returning from their summer sojourns, there may be a couple warnings signs waiting for them upon arrival.

Jeff Kilburg, president of KKM Financial, is looking at one key metric in particular – the benchmark 10-Year U.S. Treasury bond (^TNX).

“The bond market is putting up a red flag,” he says in the attached video. “We’re seeing yields globally [fall]. Look the [German] Bund is under 1%, so I think that is telling us something – proceed with caution, yesterday was the 3rd lowest volume day of the year, so I think it's two different markets yet it feels like the S&P 500 is destined to print 2,000.”

For Kilburg, S&P 2000 isn’t so much a key level to watch, but is more of milestone if anything else. “It is not a technical level but it is a psychological level… It’s critical to print that 2,000 so we can have a retracement.”

That retracement, or downward movment in stocks is coming, Kilburg says, but it won’t be for real unless another key metric shoots higher. “Everyone feels like every time we come off three to four percent this is the move, but we’re convinced, we’ve talked to a lot of hedge fund managers in Chicago, we need a couple days of real vol spikes,” he says.

“That volatility movement in the Vix (^VIX) back-to-back days, that’s really going to make folks re-think about positioning as we go into the fall as the Fed walks away.”

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