CITI: Stock Market Sentiment Is Perilously Close To All-Out Euphoria

Citi's Chart of the Month is an update to the firm's proprietary "Panic/Euphoria" model.

Simply put, when investors are panicking, then it's probably a good time to buy. If investors are euphoric, then it's probably time to sell.

"The Panic/Euphoria Model has spiked to near its highs over the past three years, suggesting frothy levels have ensued," writes Citi's Tobias Levkovich. "While a variety of other factors are constructive for equity indices, this proprietary gauge is starting to get perilously close to euphoria, cutting above the complacency readings seen in April/May 2012. In the past, when the model reached such levels, the equity markets experienced some modest consolidation. "

Levkovich notes that the futures market and hedge fund performance does not reflect "aggressive bullishness." However, the massive flow of money into equity mutual funds and various surveys suggest otherwise.

Here's a historical look at Citi's model: