You can see this cheat in action in this video:
Official response (Brynd, EU Community Manager):
Thanks for raising this here. Our developers are aware of this issue, thanks to player reports, and they were able to identify it already.
It is actually a remnant of old code back from Alpha that wasn’t intended to be left there – the icon “flashes” whenever the system thinks that the “distance to impact” point radically changes in a short time frame.
While it may appear to give positive results as an aim lead indicator initially, more thorough tests found that it triggers rather unreliably for accurate aim prediction. In many cases it does not trigger at all, in other cases it triggers in such blatantly wrong positions that it guarantees a miss (which can even be seen in the videos in the opening post). Using your skill instead of this “indicator” would be a more reliable path to success.
This glitch should be fixed in Update 0.5.9.