Citi's proprietary Panic/Euphoria model has a remarkable track record for predicting the direction of the stock market based on a variety of market sentiment measures.

When investor sentiment is euphoric, expected returns are low. And when investors are panicking, expected returns are high.

In his latest note to clients, Citi's Tobias Levkovich warns that sentiment is once again approaching euphoria.

"The Panic/Euphoria model was signaling last summer that there was a 96% chance of impressive gains by mid-2013 but it is now showing a meaningful spike towards the euphoria level which does not augur nearly as well for investors," wrote Levkovich.

That's not the only thing that's making Levkovich cautious these days.

"Moreover, lower intra-stock correlation also implies a more upbeat investment community focused on stock selection and less concerned about macro dynamics, thereby adding to the risk profile as economic, political or geopolitical events are no longer being considered by fund managers by virtue of their actions," he wrote.

Complacency and euphoria are the types of things that will exacerbate market volatility should a sell-off come.

Here's Levkovich's chart of the Panic/Euphoria model: