U.S. stocks are in uncharted territory. For the first time since 1999, all three stock indexes are making record highs simultaneously. Plus, the major indexes have not lost more than 1% in the past seven weeks. On a technical level, the Bollinger Band squeeze on the S&P 500 is the tightest it’s been on a 20-day moving average in more than 10 years.

Let’s first take a look at the most recent indicators for additional clues:

Technical Indicators

S&P 500 SPX, -1.15% is above its moving averages = Bullish

MACD (S&P 500; 19,39,9) is above the zero line = Bullish

MACD (S&P 500; 19,39,9) is even with its signal line = Neutral

S&P 500 is above support @ 2,150 = Bullish

Sentiment Indicators

II survey: (Aug. 9) 54.3% Bulls; 20.9% Bears = Bearish

AAII survey: (Aug. 10): 31.3% Bulls; 26.8% Bears = Neutral

VIX: @ 11.80 = Bearish

RSI: (S&P 500) @ 64.90 = Overbought

According to the technical indicators, the market is still in an uptrend. The warning signs, however, are coming from the sentiment indicators, which are telling us that the crowd is way too complacent. In these dog days of August, few investors believe the market will be going down anytime soon.

July retail sales could be warning for economy

Volatility as measured by the CBOE Volatility Index VIX, +7.54% is at an extreme low while the key U.S. stock indexes are moving higher. Even the pros are unsure if the party is still roaring or about to end.

Follow the money

When you follow the money over the past week (source: Zero Hedge quoting Bank of America’s Michael Hartnett), you see that the crowd loves stocks and bonds).

Investors are still piling into ETFs ($10 billion inflow) while selling managed mutual funds ($3.5 billion outflows). Bonds: $9.8 billion inflows (17 of 19 weeks inflows) Precious metals ($0.9 billion inflows (10 of 11 weeks inflow) Money Market: $3.6 billion outflows, the largest in seven weeks.

Unless there is an unanticipated “black swan” event, the market is expected to trend higher until the November election. Conventional wisdom also says the Fed will not rock the boat until after the election (if at all). Billions of dollars are betting on this outcome.

If you believe the sentiment indicators, however, the market is setting up for a major retreat. (“Yeah, yeah, we’ve heard that before,” many investors complain as they continue to buy at all-time highs.) What do you believe?

Cash is not trash

As complacency increases, astute traders must be on guard. The most comfortable place to be is in cash (you have to decide the percentages). Either the market is going to break higher and become more overbought, or we’ll wake up to a sudden downturn before November.

If there is a pullback, it’s almost a guarantee that the Fed, with help from the algos, will do everything in its power to prevent a severe correction. Even though the odds favor a downturn based on the sentiment indicators, shorting the market is too risky right now. This is the kind of market where “not even a skunk can make a scent,” so sitting comfortably on the sidelines is the place to be.

Of course, it’s difficult to do nothing as the S&P 500 heads towards 2,300 (about 5% higher from current levels). Many traders feel they have to play every hand. Don’t make that mistake. There are times when sitting and watching is the smartest move — like now, in this third-most overbought U.S. market in history after 2000 and 1929.

Computer algos rule the markets

On the other hand, you may believe that the buy-on-the-dip computer algos will never let this market go down by much. So far, that has been true. After every pullback, including after Brexit, or when the Fed raised interest rates by 0.25%: the market rocketed higher.

Perhaps it’s really different this time: Maybe the algos have figured out a way to keep the market at a permanently high plateau. Judging by low market volume and low volatility, the algos are in control. Computers are buying on every dip, which has caused strange aberrations and behavior.

“ The four most expensive words in the English language are ‘This time it’s different.’ ”

I recently watched a documentary about the year 1929. The interviewer spoke with a man who remembered complaining to his father in 1928 (when he was a child), “Pop, why aren’t we in the stock market like everyone else? All the other kids are getting rich.” His father answered, “Just you wait. Just you wait.”

Sure, it might be different this time because of the algos, but that reminds me of Sir John Templeton’s quote: “The four most expensive words in the English language are ‘This time it’s different.’”

Bottom line: Continue to stay cautiously neutral. Like a coiled spring, the odds are good that a pullback is coming followed by an algo-driven buy-on-the-dip rally.

Michael Sincere (michaelsincere.com) is the author of “Understanding Options 2E” and “Understanding Stocks 2E.”