"There's this big long list of potential negatives out there that are pending. That could cause this market to pull back. The difficulty is picking the exact time," said Randy Frederick, managing director of active trading and derivatives at Charles Schwab. "We've got the government funding debate coming up in September; we've got the debt ceiling debate and we've got this thing with Fed tapering," he said. "Obamacare is scheduled to kick in October 1 and you have some pretty serious geopolitical events going on. There's a lot of things that converge, not at this moment, but in the next 60 days."
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Frederick and Greenhaus pointed to the history of choppy performance in the market in September and October. "I haven't called for a pull back right at this moment but there's a lot of things going on, and the market is getting closer to those dates. ... Being a leading indicator, [it] tries to front run," Frederick said.
Frederick said he had expected the market to move sideways in the near term, but stocks have already made some technical strides on the downside.The S&P fell several points through 1669, the high in mid-May before stocks corrected into June. "That also brings it down to the edge of the 50-day moving average," at 1656, he said. "If it breaks that, I think there's downside. My little bit longer outlook, out until the end of October, is we're probably due for a correction that could bring it to 1565." That was the 2007 high that was surpassed Aug. 2.
"These potential catalysts could do that. I don't think it's going to happen overnight. The thing is if we get back to that level, we're still up for the year. That's only an eight percent pull back," Frederick said.
The S&P is up almost 17 percent for the year. The Dow fell through its 50-day moving average of 15,281.6 Thursday morning.
As stocks fell and yields rose, the dollar fell after initially rising with rates. Gold was higher. Treasurys steadied and the 10-year yield was at 2.77 percent in early afternoon trading.
As bonds sold off, the Treasury Department also released data showing foreign investors reduced their holdings of long-term U.S. securities in June, with net sales of $77 billion. Net sales by private foreign investors were $81.6 billion. The sum total of all net foreign acquisitions of long-term securities, short-term U.S. securities and banking flows was a monthly net outflow of $19 billion. Bonds in June were already reacting to the idea of the Fed cutting back on its $85 billion a month bond purchase program because of comments from Fed officials, including Fed Chairman Ben Bernanke.
Gabe Mann, RBS Treasury strategist, said it appears that 2.80 percent level on the 10-year is an area of support, but he expects the yield could move up to 2.85 percent.
"We're still in this shakeout phase of figuring out the new round of correlations…Today we have equities down and bonds down. That correlation is one we haven't seen that much of in recent times," he said.
Rising rates have already taken their toll on mortgage rates, which have been moving higher.
—By CNBC's Patti Domm. Follow here on Twitter @pattidomm.