Two important indicators of stock market sentiment have risen recently, indicating equities are at risk of a downturn, says Mark Hulbert, editor of Hulbert Financial Digest.

The market's "wall of worry [a month ago] has given way to complacency and hope — moods that typically are not conducive to a strongly rising market," he writes on MarketWatch.

The Hulbert Nasdaq Newsletter Sentiment Index, which measures the average recommended equity exposure among short-term stock market participants who focus on timing swings in the Nasdaq and is perhaps the Digest's most sensitive measure of sentiment, has soared to 43.8 percent from 6 percent a month ago, Hulbert notes.

Editor's Note: New Warning — Stocks on Verge of Major Collapse

"Even more worrisome is another sentiment index that I calculate. This one is based on the average exposure level among all short-term market timers the Digest monitors, rather than just those who focus on the Nasdaq," he proclaims.

That index has risen to 61.7 percent, close to its high for the year.

"To be sure, these two sentiment indexes are not suggesting that we're at irrational exuberance levels. But they do suggest that we're closer to that end of the sentiment spectrum than to blood is running in the streets skepticism," Hulbert adds.

"There's no way of knowing, of course, how much of the stock market's recent strength was being fueled by sentiment. But it is safe to say that, if the recent rally isn't close to being over, it will have to be based on something other than a strong wall of worry."

Both the S&P 500 and Dow Jones Industrial Average hit record highs Monday, after the Institute for Supply Management reported that its index of factory activity climbed to 55.4 last month from 54.9 in April.

"The market has lately been focused more on the weak economic news and the bond market, but we saw a reversal of that with the [ISM] numbers," Rick Meckler, president of hedge fund manager LibertyView Capital Management, tells Reuters.

Still, "it's hard to move the market higher, considering we are fairly fully valued at this point," he said.

Tuesday, U.S. stocks pulled back from record levels and ended slightly lower. The Standard & Poor's 500 index edged down less than a point, or 0.04 percent, to close at 1,924. The Dow industrials lost 21 points, or 0.1 percent, to 16,722. The Nasdaq composite slipped three points, or 0.1 percent, to 4,234.

Editor's Note: New Warning — Stocks on Verge of Major Collapse

Related Stories:

• Stock Market Volatility Plunges; Some Worry About Risk
• Hulbert: Proliferation of IPOs Is a Bearish Indicator