Sentiment Reaching Extremes

As the US indices continue to move higher without missing a beat, the sentiment indicators over the past month are starting to show extreme readings.  In the past few years these readings have been associated with moderate to meaningful pullbacks in the markets.  Courtesy of SentimenTrader on the chart below you can see the spread between the institutional investors and retail investors has widened to levels not seen since the fall of 2012, right before the market corrected.  The higher the number the more confident that group is the market will be higher in the coming weeks.  While the spread can continue to widen if the market continues to climb, the risk to reward ratio is not looking very attractive.  Remember, we always want to follow the smart money (green line) and right now they are not particularly confident.