Below are three near-term risks to the market:

1) Complacency – Complacency levels are getting extremely high as the fears of four weeks ago quickly shift to greed. This has been most notable in the very bullish posturing of US portfolio managers (see here) and the Volatility Index. Portfolio managers are now sitting on record low cash levels and haven’t been this bullish since the 2007 highs and the January highs. The VIX has plummeted back to levels just before the January sell-off began. The VIX has now fallen in 17 of the last 19 sessions.

The market overcame the odds and continued to rally last week, gaining an average of about 3%. The numbers themselves look great, but before you pop the champagne, you should know the rally may have carried stocks a little too far for their own good, and a short-term pullback may be coming soon. More on that below. First up, the big picture.

Economic Calendar

Exactly fifty two weeks after the S&P500 hit its 12-year lows at 666, the index rose 68%, driving down the VIX near January's 19-month lows. Much analysis has been done on equity indices and the VIX on the S&P index options. But the relationship between the two merits closer attention. Neither the S&P500, nor the Dow have yet retested their January highs. But the technical dynamics of the SP500/VIX ratio can be used as a possible forward-looking signal for a looming decline in the S&P500 index. On Friday, March 5th (52^nd Friday of the 666 low in the S&P500), the S&P500/VIX ratio hit a 5-week high at 65.38. This level suggests these key developments:

1. The chart below is the S&P/VIX ratio since July 2009, indicating a possible double top around 65. Note that the first top (first circle) consists of 3 spikes (Jan 11, 14 and 19), followed by a 38% decline in the ratio in 4 days, consistent with a 5% sell-off in the S&P500.