Risks for an Early Fall; 10-Year Yield Watch: Best of Kass

NEW YORK (TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

Last week, Kass wrote about a bull market in complacency and a year-end prediction for 10-year U.S. note yield.

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Risks for an Early Fall

Originally published on Monday, Sept. 8, at 7:35 a.m. EDT

We are now five weeks into the rally from the August lows.

Cyclical stocks, housing and industrials (which rallied in 2013 when valuations seemed expensive and profits foundered) have begun to underperform (as valuations seem inexpensive and as profits outpace price gains). This is the nature of these groups (they tend to discount results in advance) and is also evidence of an aging bull market.

Read More: 10 Stocks Carl Icahn Loves in 2014

As mentioned last week, divergences have developed, mainly characterized by lagging breadth and new highs on the Nasdaq and in small-cap land. Thus far, this has not produced a marked trend change in the market, as the favoring of large-caps has been overcome by rotational moves.

Meanwhile, most gauges of investor sentiment (AAII bulls/bears, flows into long-only funds, etc.) have moved into the excessive bullish arena and have reached levels last seen in late 2013, before the January 2014 correction.

Strategists are nearly unanimously bullish, as evidence by Barron's' recent cover (see below) and cover story (subscription required).

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