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For the past year, investors have been enjoying a low-volatility environment, allowing many to see gains without worry or sleepless nights. However, I believe this euphoria will be coming to an end shortly.

In his 2013 outlook, bond manager/guru Jeff Gundlach referred to the status of the markets as a "coiled snake ready to strike." I agree wholeheartedly with this analogy.

You can see what he is talking about when taking a look at the VIX ($VIX):

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Source: Riverbend Investment Management

The VIX, which measures market volatility and is sometimes referred to as the "fear gauge", is still at a very low level. With earnings season getting underway and the anticipated start of debt ceiling discussions, I would expect higher levels of volatility in the market.

It is also interesting that there doesn't seem to be a great deal of hedging either, but this trend looks like it is beginning to change.

I like to look at volume levels of various inverse ETFs, such as the Proshares Short S&P 500 fund (NYSEARCA:SH), to help gauge expected market direction:

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While slow rising, these inverse ETFs are still showing low volume levels, which may indicate that investors are talking a wait and see approach to the market - hoping that they will be nimble enough when the time comes to jump back in.

Unfortunately, scenarios like this usually indicate that the market will move violently in either direction as everyone reacts at the same time… like a "coiled snake" striking.

US equities appear to be overbought. Although markets can stay overbought for some time, the NYSE High Low index is running very high when compared to the last three years.

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One major concern I have is the high beta names in the top 10 companies that make up the S&P 500 index. Investors are clearly over-weighted in riskier asset classes.

S&P 500 sector breakdown etf absolute return

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Source: S&P

In addition, bond prices on the other end of the risk curve appear to be breaking down:

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The breakdown may be partially caused by investors reallocating their portfolios into equities. Some money is going into high beta names, but I am seeing inflows into dividend-paying stocks as well.

If this shift causes bond yields to start rising, the market may become spooked that the Fed is losing their ability to control the yield curve. And this trend of moving money away from bonds and into equities will quickly reverse.

Apple (NASDAQ:AAPL) makes up a large percentage of the tech sector and is currently the second largest stock in the S&P 500 index by capitalization (Apple just lost the #1 position after its month-long decline). Its share price may follow the same boom/bust pattern as Microsoft (NASDAQ:MSFT):

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source: Bespoke Investment Group

Investors should keep a close eye on Apple. Apple led the market up and may very well lead the market lower. Just like Microsoft did in the late 1990s and early 2000s.

I am hearing similar arguments as to why Apple's stock price will continue to rise as I did with Microsoft in 1999. And we know how that turned out.

Lastly, the technology sector isn't the only area which looks overbought. Sectors that make up the largest weightings of the S&P 500 are looking very lofty:

spx above 50 day

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source: Bespoke Investment Group

Currently our ARTAIS (Absolute Returns Through Adaptive Investment Strategies) model has been in a cash raising mode. We currently have no weighting in US Bonds, as bond volatility levels have increased.

The seasonal portion of the model still remains invested in technology, but is in the process of being replaced with energy as this time of year tends to be a historically strong period for the energy sector.

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Source: Investors Are Sleeping Too Well At Night