A strong advance last week and so far this week more than erased the losses of the prior month. The stock market has advanced to its highest level since last fall. While there have been a couple of encouraging profit reports so far in the second-quarter reporting season, earnings are by and large beating estimates on the back of cost cutting. In many cases sales are still falling short of expectations as was the case this morning with Caterpillar and United Technologies. But obviously that hasn’t stopped investors from bidding shares higher.

A sign that investor complacency has returned in a big way can be seen in the S&P Volatility Index (VIX), the so-called fear gauge, having declined to its lowest level since last September, before Lehman Brothers was tossed under the bankruptcy bus. Just how complacent investors have become can also be seen in just how far above their 200-day moving averages stocks have climbed. For the S&P 500, that figure stands at nearly 10 percent. For the technology heavy NASDAQ 100, that figure stands at 20 percent.

We’re not yet back to levels that prevailed during the Tech Bubble, but the trend is worrisome, especially since it’s occurring on relatively light volume and with program trading accounting for a third or more of the average daily volume on the New York Stock Exchange.

While retail investors are flocking back into equities and one market strategist after another is racing to raise their year-end target for the Dow (perhaps out of fear of not running with the herd), corporate insiders has quietly heading for the exits.

Psychology being what it is, though, the market could now easily climb to the 1000 mark on the S&P 500, and possibly a bit higher, before running out of steam. Our position essentially hasn’t changed, however. The economy is still contracting, albeit at a slower pace than in the first quarter. And at some point, perhaps soon, stocks are likely to retreat and, in the process, wipe out much of the gains we’ve enjoyed since early March.