What happens when excessive bullish sentiment meets extreme conditions from our indicator constructed from the trends in the CRB Index, gold and yields on the 10 year Treasury?

It is the Will Robinson signal.

Essentially, this is a set of market conditions that should not be ignored. Of course, investors have been ignoring every danger sign for the past 3 months as prices could only go one way --up! One day does not make a trend, and the mini down day, that was brought about by the unrest in Egypt, was about the "best" buying opportunity in months. Nonetheless, for a numbers guy like myself looking to play the odds and averages, risk remains.

Figures 1 and 2 show the Will Robinson signals since 2004. These are the red dots over the price bars. The only real failure has been the recent signal from November, 2010.

Figure1. $INX/ weekly

Figure2. $INX/ weekly