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Traders are loading up bets on a market outcome that should make everyone nervous

Speculative bets that the Dow will run higher from here are at a record high.

And this should give anyone worried about the stock market reason to, well, worry even more.

In a note to clients out on Wednesday, David Rosenberg at Gluskin Sheff noted that speculative long contracts — or bets that stocks are going higher — on the Dow at the Chicago Board of Trade recently hit a record of 38,382.

Combine this with long bets on the S&P 500 rising to the highest level in three years and you have a recipe for concerns about the market echoed most forcefully by market legend Jeremy Grantham earlier this year: a blow-off top.

August 31 COTD 2016
August 31 COTD 2016

(Gluskin Sheff Research)

In a note to clients in February, Grantham wrote, "I must admit to feeling nervous for this year's equity outlook in the US ... The ability of the market to hurt eager bears some more is probably not exhausted. I still believe that, with the help of the Fed and its allies, the U.S. market will rally once again to become a fully-fledged bubble before it breaks."

Grantham's view of a "fully-fledged bubble" would be a move by the S&P 500 to 2,300.

On Wednesday afternoon, the S&P 500 was trading at around 2,165.

And even at this level, the market is starting to look a little expensive with investors perhaps a bit too overconfident.

"Investors Intelligence is at 56.7% bulls and just 20.2% bears," Rosenberg writes. "The American Association of Individual Investors (AAII) sentiment survey shows fewer than 30% of retail investors classify themselves as bearish. So this market is overbought, pure and simple."

Rosenberg continued (emphasis added):

"Valuations have reached extremes for the cycle at a 20.5x last year's earnings and 18.5x 2016 earnings. Not a bubble, but quickly approaching the one standard deviation line... This by no means suggests an overpriced stock market cannot get pricier — it is only to say that the market is discounting an earnings stream that is highly unlikely to materialize — but this multiple only really makes sense if you are willing to pay today for an earnings stream we likely will not see until 2018 at the earliest."

Over the last six weeks, markets have really done nothing.

Matt Turner reports on Wednesday that, everywhere you turn in markets, the word "complacency" keeps coming up.

Data from Citigroup last week indicated that this complacency has led to aggressive bets against volatility from the market, potentially setting markets up for rougher days ahead. Now, more volatility, of course, does not mean markets necessarily go down — only that they swing wildly.

But the huge increase in bets that stocks will go higher — perhaps much higher — represents the possibility of some people's biggest fear coming true.

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