Worrisome sentiment levels push market bull Jeff Mills into pullback camp

Bryn Mawr Trust's Jeff Mills believes the S&P 500's longest weekly win streak in two years is on the verge of ending.

The firm's chief investment officer is on sell-off watch because he's worried market optimism is getting too robust.

"It really has to do with number one sentiment," Mills told CNBC's "Trading Nation" on Friday. "Even though I wouldn't characterize it as extreme, I do think it leaves the market a little bit more vulnerable to a pullback."

He cites the latest BofA-Merrill Lynch monthly survey of fund managers as a major sentiment reading that's raising a red flag. It found available cash has dropped to the lowest level in more than six years as investors look to put money to work in stocks.

"Just tactically the market is overbought," said Mills.

On Friday, the S&P 500, Dow and Nasdaq hit all-time highs. The Dow crossed and closed above 28,000 for the first time ever. The S&P 500 is now at 3,120, up 24.5% so far this year.

"If we were to get some kind of nasty trade headline or maybe a poor PMI [Purchasing Managers' Index] print it could be a move for a little bit of a catalyst lower," said Mills. "Nothing dramatic but maybe in the 5% range."

To put it in perspective, a 5% drop would erase 1,400 points from the Dow.

Mills believes the setback will likely happen before the end of this month, and he acknowledges it could feel scary for investors. But he wouldn't be discouraged.

"I think we're buying there. You know, we don't think a recession is the base case for 2020," he added. "When that's the backdrop, we're going to remain fully invested."

Mills is bullish on 2020, and he expects a re-acceleration of economic growth and a U.S.-China trade war resolution to ultimately to push cyclicals higher. His top idea is to go abroad, a widely under-deployed play right now.

"You're going to see a more obvious bottoming in the global manufacturing cycle. I think finally you start to see lower interest rates act as a tailwind," Mills said. "When that's the case I like value. I like more pro-cyclical. And, when I like that, I like international."

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