Paul Schatz, president of Heritage Capital, told CNBC Tuesday that after weeks of bullishness, he still expects the market to hit new highs this month and into early August.
But if the "rocket can’t go high enough into the stratosphere," he sees the S&P 500falling back to 1250.
He is already searching for signs of weakness. With the Federal Reserve done with quantitative easing, "I’m looking for signs that liquidity is abating. I’m watching the performance of high-yield bonds. They are pretty good bellwethers of liquidity."
He is also looking for outperformance in small-cap stocks because "they should sniff out any draining of liquidity."
Schatz, who gave no specific stock picks, also wants to see which sectors will lead the market higher.
"I don’t want to see consumer staples and utilities and health care leading this next rally," he said. "I want to see energy lead. I want to see some areas of technology lead. I can hope that financials lead but I don’t think that’s going to happen. I want to see some folks willing to take risks."
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Disclosure information was not available for Paul Schatz or his company.