Long-time market bull Art Hogan is on pullback alert.
With the busiest period of earnings season kicking off this week, the National Securities chief market strategist warns conditions are ripe for a significant move lower.
"Stocks are relatively priced for perfection, and you tend to have a bit of an overreaction to bad news or in-line news when that happens," he told CNBC's "Trading Nation" on Friday. "My guess is if we're going to rationalize a market that's pretty stretched right here, it's going to happen right now."
Hogan sees fourth quarter results as the top risk to the record market rally — bigger than coronavirus fears and Mideast tensions.
"We have about a third of the S&P 500 reporting. We're going to see the losers lose a whole lot more than we've seen in a while," he said. "The index itself could probably pull back 3% to 5%."
According to Hogan, the market's biggest winners will likely get hit the hardest.
"There are five technology names that are driving a good chunk of the movement in the S&P. On the other side, you see the utilities index," he said. "The index is trading at 25 times and it's throwing out a dividend that's less than 3%. Both of those numbers are historically stretched. This is an index that usually trades at 16 times and has about a 5% dividend."
But Hogan, whose S&P 500 year-end target is 3,450, contends it's no reason to turn bearish. He's looking at the next downturn as a key buying opportunity.
Hogan and his firm have taken steps to capitalize on a leg lower. Similar to Blackstone, increasing the cash has been a major strategy.
"Our cash levels coming into the first quarter have been higher than they historically are," Hogan said.
The S&P 500 fell 30 points on Friday to close at 3,295. It's now 1.3% off its record high.