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The bulls are ready to take on the whales

At a time when some of Wall Street's biggest whales are heading for the exits, retail investors are betting they're wrong.

In recent weeks, deep-pocketed investors including George Soros, David Tepper and Jeffrey Gundlach have disclosed big bearish positions in regulatory findings.

However, fund managers are indicating declining cash positions and an overweight position on U.S. stocks that has reached its highest level since January 2015. The moves come as major equity indexes post a succession of record highs despite mixed economic data and another quarter of relatively weak earnings.

Cash positions for August fell to 5.4 percent of portfolios from July, a 0.4 percentage point drop, according to a Bank of America Merrill Lynch Fund Manager Survey released Tuesday. That came at the same time that managers adjusted their positions to a net 11 percent overweight, or above the normal portfolio allocation. (Traditionally, portfolios carry about 60 percent exposure to stocks.)

While the moves represent a significant change from a previously cautious position, they don't necessarily signal an exuberance that would indicate a market top, the firm said.

A rodeo bucking bull Bos taurus charges after a competitor in the rodeo arena, AB,
Robert McGuoey | Getty Images

"Investors are less bearish, but sentiment has yet to shift from 'fear' to 'greed,'" said Michael Hartnett, chief investment strategist. "As such, we expect stock prices to rise further until bonds throw another tantrum." Hartnett said cash allocations would have to fall below 5.1 percent to indicate the rally, which has seen the S&P 500 rise nearly 20 percent since the Feb. 11 low, is out of steam.

The survey also found managers more optimistic on growth.

A net 23 percent said they see the economy improving over the next year. That comes as global GDP grew it just a 2.5 percent pace in 2016, and the US GDP averaged just a 1 percent gain for the first half of 2016. The Atlanta Fed is expecting U.S. growth to accelerate to 3.5 percent in the third quarter.

That optimism comes amid a slew of high-profile bets against the market. Regulatory findings show that top hedge fund managers have gone either outright bearish or taken up strongly defensive positions against market troubles ahead.

However, the overall flow of money is into stocks.

Equity-focused mutual funds last week took in $6.5 billion while money markets saw $3.6 billion come out. That ran counter to the prevailing trend during 2016, which has seen long-only mutual funds surrender $176.9 billion, according to BofAML.

Hedge funds, despite the bearish sentiments from some of the industry's biggest names, also are moving to stocks. Asset managers pushed money into equity indexes last week — $6.7 billion into the S&P 500 and just shy of $1 billion into emerging market benchmarks, according to BofAML.