MarketWatch | Dow scores best day in seven weeks as U.S. stocks bounce back from losing week

Some investors were eyeing Monday's bounce with caution. The up move appeared in line with fluctuations often seen in the early stages of a market correction, James Demmert, chief investment officer at Main Street Research, told MarketWatch in a phone interview.

Demmert cautioned that the market remains technically overbought, while strong readings on investor bullishness in sentiment surveys and a subdued Cboe Volatility Index continue to "scream complacency." Valuations, with the S&P 500 trading north of 19 times earnings, are also at levels that have accompanied recent setbacks.

He said he sees room for the S&P 500 to retreat 8% to 10% or so from its recent highs.

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