This proprietary risk indicator has turned bearish on stocks

From Pragmatic Capitalism:
Our proprietary risk metric is beginning to throw off a warning signal which comes just as the markets are about to enter their seasonally weakest six months of the year.

The risk ratio indicator is a weighted average of bullish to bearish sentiment, the volatility index, the rate of change for the S&P 500, and the new high/new low ratio of the NYSE. This weighted average is then smoothed with an eight week rolling average to eliminate a lot of the noise.

... While a lot of people look at these indicators individually, we combine weight and smooth them to provide a more global look at market psychology and sentiment. Currently, that outlook is very bullish... As a contrarian investment manager, I think this is a time to begin raising cash and hedging risk in portfolios.

The indicator is best used when...

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Bullish sentiment is now officially "off the charts"

From Pragmatic Captialism:


BEWARE!!!
Investors have officially become convinced that stocks do not decline.
Sentiment readings are literally off the charts this week, with the AAII small investor bullish sentiment survey surging 9% to 57.6%. That’s the highest reading since January 2007. Charles Rotblut of AAII is reporting that...
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More on sentiment:
Investors are officially giddy about stocks again
Investors are becoming dangerously complacent again

Bullish sentiment pushes even further into extreme territory
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