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The S&P 500 just had a ‘perfect week’—which is making some investors nervous

August 28, 2020, 9:02 PM UTC

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The bulls certainly prevailed this week.

The S&P 500 closed up higher every day this week, finally landing at 3,508 on Friday, up over 2% from Monday’s close—notching what experts like Howard Silverblatt, senior index analyst of product management at S&P Dow Jones Indices, call a “perfect week.”

Since the index finally closed above its pre-pandemic high on Aug. 18, it has kept adding new gains. In fact, the S&P 500 booked a new all-time high on Friday for the sixth day in a row—”the longest such streak since six in a row in January 2018,” according to an LPL Financial research note Friday. Indeed, with one trading day to go left in August, it “would be the best August since 1986,” per LPL.

Those like Silverblatt are “amazed,” he told Fortune.

And all around, August was a record-breaker. “To start this month, … the first six days of August were higher,” LPL’s Ryan Detrick points out. Now, “We’ve had two separate six-day winning streaks in the same month—that’s never happened in the history of August,” he tells Fortune.

While it’s certainly no secret that the Fed has investors’ backs, on Thursday, chair Jerome Powell announced the Fed will now target inflation “that averages 2% over time,” sending stocks higher on the promise of lower rates for longer.

“Ultra-low interest rates make it rational for investors to pay more for a given dollar of equity earnings, justifying higher valuations,” Mark Haefele, UBS Global Wealth Management’s chief investment officer, wrote in a note Friday. Translation? Stocks may keep trekking ever-higher at even loftier price tags.

Red flags are waving

For Randy Frederick, Charles Schwab’s vice president of trading and derivatives, the markets right now can be summed up with one word: “Astounding,” he tells Fortune.

But this massive run-up, with markets booking new highs each day, is starting to look extreme.

The CBOE equity put/call ratio (which tracks the volume of options and is more short-term focused) is at 38 as of Friday—”which is just unheard of,” Frederick says. Essentially, “38 puts trading for every 100 calls whenever you’re at all-time highs and breaking [them] every day, that just doesn’t happen.” (He notes any ratio below 60 is “unbelievably bullish.”)

The upshot is that things have gotten “irrationally exuberant” as the market keeps going up while investors continue to become more bullish, Frederick notes. That should be a sign to investors that a pullback may be coming: Frederick suggests something to the tune of a 2% to 4% correction is “overdue.”

Meanwhile, although the VIX index (which tracks volatility) dropped on Friday, the index has risen over the past few days alongside the markets—something that normally doesn’t happen “unless the VIX is signaling a reversal to the downside,” Frederick points out.

While the markets this year have been anything but predictable, all told, “I’m kind of astounded by how bullish things have been and how long they’ve lasted, so I keep sort of waving the caution flags,” he says. “I’m not telling everybody to panic or sell out, but I’m saying, ‘Look, there are so many flags waving right now, caution, caution, caution.'”