2007 was a memorable time for America. Rihanna burst on the scene and Superbad made McLovin’ a household alias. In financial markets Citigroup’s CEO Chuck Prince marked the top of the real estate bubble by telling the New York Times his bank would keep making high-risk loans as long as the stock market rewarded such behavior.

“As long as the music is playing, you’ve got to get up and dance,” Prince said by way of dismissing skittish credit markets “We’re still dancing.”

For you buzzkills who insist on keeping score, Citi shares were trading at a split adjusted $500 a share while Prince was doing his final cha cha.

It’s that last part that has Hugh Johnson worried. In the attached clip the head of HJ Advisors says there are some dislocations in the tape that remind him of that heady summer seven years ago. “You look at sector performance and you see things like consumer cyclicals, consumer discretionary, industrials, technology stocks, the so-called economically sensitive bull market sectors are not doing well on a relative basis and defensive sectors, utilities, telecommunications consumer staples are at the top of the list.”

Add to that the underperformance of small caps compared to larger stocks and some dislocations in the credit market and you start to see signs that investors are getting skittish. Johnson isn’t in the camp that wants to fade the masses; history suggests investors’ bouts with nerves tend to get worse before they get better.

Johnson says the divergences are a sign that the economy or markets are about to take a turn for the worse. Either way he’s not inclined to fight the masses, choosing instead to make discretion the better part of valor.

“Bring down your weight in consumer stocks, bring down your weight in technology some, bring down your weight in industrials,” he advises. Switch out small cap stocks for large and in general respect the fact that the market is talking and what’s it’s saying is that this is a time to exercise some caution.

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