Stock prices are at record highs, and so is speculation

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As the stock market amps up to record highs, traders who hope that the rally will keep going are doubling down on their bets.

Optimism is nice, but the rash of speculative money pouring in is sparking worries that the rally could be on shaky footing.

In fact, net speculative positions on Dow futures are at record highs, according to David Rosenberg, chief economist and strategist at Gluskin Sheff. Speculative bets on the are at their highest levels since Jan. 6, 2015, he said. Traders speculate on market direction through Dow futures contracts, which are based on the Dow Jones industrial average.

Rosenberg cited the spec positions along with 11 other factors to warn clients Thursday that they should sell into, not buy, the recent rally.

"Discipline means always buying the fear and selling the greed," he said in his daily note. "On a scale of one to 10, we are at eight on this scale. So start scaling back."

Among the worrisome developments he cites are no confirmation of the highs by either small-cap stocks, transports, tech or financials; high valuations compared with earnings expectations; and an abundance of complacency that has seen the CBOE Volatility Index, a popular gauge of market fear, slide to two-year lows.

Indeed, investor surveys are showing a high level of confidence. Investors Intelligence, which serves as a proxy for professional investors through its polling of newsletter authors, finds the bull-bear spread at its highest since early 2015. (The S&P 500 rallied at that time briefly, then took another 15 months to regain the record high it set.)

Investors have taken divergent paths during the market run.

Over the past three weeks, stock-focused mutual funds, regarded as the domain of retail investors, have seen $6.8 billion of outflows, according to Bank of America Merrill Lynch. Exchange-traded funds, which are seen as a proxy for short-term traders, have seen $2.1 billion of inflows.

Rosenberg had been known for his bearish views on the economy and markets but changed his tack in 2011. He lately has been warning of an economic slowdown as well as an overheated market.