The S&P 500 index has retreated 9 percent from its May 20 record high of 2,134.72, and star hedge fund manager Doug Kass, president of Seabreeze Partners Management, doesn't see it returning to that peak anytime soon.

"The S&P 500 is now in the process of testing the capitulation low of around 1875 that it reached two weeks ago," he writes on his blog. "That bottom produced new 52-week lows in 1,335 individual stocks, the greatest since 2008." The S&P 500 closed at 1,942.04 Wednesday.

The 1,875 level will likely hold, Kass says. "But I can’t rule out a larger decline, particularly since this is quickly becoming the developing consensus. A major top is likely to be in place for some time."

He expects the index to trade between 1,875 and 2,025 for the next six months and to show a loss between 5 and 10 percent for 2015 as a whole.

As for valuations, the S&P 500 carried a trailing price-earnings ratio of 20.35 Friday, up from 18.97 a year ago, according to Birinyi Associates.

Meanwhile, it was China's woes and uncertainty over the timing of Federal Reserve interest rate hikes that set off the 11 percent drop in the S&P 500 index between Aug. 17 and Aug. 25, right?

Not exactly, says star hedge fund manager Lee Cooperman, founder of Omega Advisors. In a Sept. 1 letter to investors, he wrote that fundamentals alone "cannot fully explain the magnitude and velocity of the decline in equity markets last month," the Financial Times reports.

He puts some of the blame on "systemic/technical investors," including risk parity funds that allocate investments between stocks, bonds and commodities, and commodity trading advisers' funds, which invest like hedge funds.

Some agree with Cooperman. "These technical factors can push the market away from fundamentals," Marko Kolanovic, a senior JPMorgan Chase strategist, said in a report obtained by the FT.

Omega's stock funds plunged 9-11 percent in August and are down between 6-11 percent so far this year, the letter states.

To be sure, while technical factors can drive markets for short periods, in the long term, fundamentals win out. So if you are investing on the basis of solid research, you don't necessarily have to sell when a holding takes a sudden dive.

Related Stories:

• Doug Kass: Global Economic Crisis May Be Brewing
• Doug Kass: Recent Spike in Volatility Is 'Precursor to Further Spikes'