For the most recent leg of the rally, it seems like the so-called smart money may not be so smart after all.
Deep-pocketed institutional investors appear to have lagged over the past month, at least judged by the traditional yardsticks of daily trading behavior.
Traditional market lore has it that retail investors and smaller traders hit the market in the early part of the day, while the larger investors do their business nearer to the market close.
If that's true, the smart money has been losing.
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Over the past month, during which the S&P 500 (^GSPC) has rallied more than 6 percent, the index has gained 10 percent in the first half-hour, while it has lost 4.3 percent in the last hour, according to Bespoke Investment Group.
Employing even more conventional wisdom, that might suggest the market is forming a top and ready to fall, as retail investors are often thought of as the last ones to a rally.
That thinking, though, is getting challenged.
"Clearly the open has been more positive than the close over the last six months. But even if this does mean that the institutional investor is more bearish than the retail investor, we wouldn't be too concerned," Bespoke's Paul Hickey said in an analysis. "Based on performance throughout this bull market and the various sentiment indicators we track, one could argue that it's the retail money that is actually the smart money these days!"
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There's no doubt the retail investor has warmed up to the market in 2013 after sitting out much of the gains since the March 2009 lows. The mom-and-pop crowd ripped just short of $300 billion out of mutual funds from the 2009 low point through the end of 2012 even as the market gained more than 110 percent during the span.
Money has piled back into equity funds this year and has helped propel the market to record highs. A recent American Association of Individual Investors Allocation Survey showed stock allocations at six-year highs in portfolios.
In recent weeks, multiple market experts have made pullback calls that have failed to materialize to any significant degree.
The surge in retail investor sentiment likely will only increase those calls, and there's history to suggest that a substantial market drop is on the horizon.
Sam Stovall, chief equity strategist at S&P Capital IQ, said a pullback of 5 percent or more at some point this year would be keeping with history, but "should be embraced" as a chance to add to stock positions.
Tracing the four-year market pattern from the 2009 low to breakeven and beyond this year, Stovall said the market follows what he likes to call a "Four-Step Waltz":
1) The S&P 500 rose a median 6 percent beyond the break-even level, which was then followed by 2) a pullback of about 7 percent, 3) a recovery and advance of 5 percent before 4) finally slipping into a decline of 10 percent (median) to 20 percent (mean). Indeed, this fourth "dip" step has resulted in declines of widely varying magnitudes in which six declines were as little as 5.0 percent-10.1 percent while four declines ranged from 19.9 percent to 56.8 percent. So should history repeat itself, and there's no guarantee it will, the S&P 500 may soon be headed for a decline in excess of 5 percent, and more likely deeper than 10 percent. I say soon, because the median and mean advance typically seen in step 3 (the one we are in now) would cause the current S&P 500 climb to top out between 1,744 and 1,795, respectively.
The bullish caveat is that from a calendar perspective, December and January rank first and third respectively for fewest market corrections.
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"So while history says a correction is due, it doesn't say whether it will be on time," Stovall said. "As a result, investors will likely get to enjoy their holiday festivities before fretting over the post-New Year's fireworks."
-By CNBC's Jeff Cox. Follow him on Twitter @JeffCoxCNBCcom .
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