Stocks have risen to levels not seen since before the financial crisis -- but in this real-world version of March Madness neither the bulls nor the bears seem willing to place big bets on whether the rally will survive and advance.

In fact, two key barometers fail to show a clear advantage for either side as volume dries up and a gauge of investor fear is near a five-year low.

“I think complacency is the right word for it,” says Nick Colas, chief market strategist at ConvergEx Group. “The fundamentals aren’t driving it.  This rally has been about confidence and sentiment.”

But after three tumultuous trading years, Colas and other market watchers have noticed a marked absence of conviction as well as volatility on Wall Street in 2012.

The Dow Jones Industrial Average has recorded just four trading days this year with more than a 1% move.  And just one of those was a decline.  That’s a big difference from the past few years.

Dow Industrials: a Vacation from Volatility

1% moves in first 51 trading days
2012:  4 total, 1 down
2011:  9 total, 6 down
2010:  14 total, 6 down
2009:  32 total, 21 down
Source:  Dow Jones Indexes

These smaller swings are coming on lower-than-average trading volume.  Almost every trading session this year has posted volume below the NYSE Composite’s 200-day moving average.

Investors frequently watch for rising volume levels for confirmation that a trend will extend as fresh cash or new buyers enter the market.  Individuals certainly haven’t been meaningfully buying stocks in this latest move up.  

Mutual fund tracker ICI reports February was the first full month of net positive equity fund inflows since last April.  But all of the positive flows were directed to international funds.

Money continued to exit funds focusing on the US market last month.  Domestic funds haven’t had net positive inflows since last April, when the market peaked in 2011.

The lack of volume has caught the eye of professional traders.

“It shows a lack of conviction by big asset managers that we’re out of the woods,” says Kenneth Polcari, managing director of ICAP Corporate. “It leaves the market vulnerable to a quick turn.”

So far this vulnerability hasn’t stoked visible signs of fear among the bulls.  The market’s widely-watched fear gauge, the CBOE’s Volatility Index (VIX), slipped below 14 this week to a level not seen since June 2007.

The VIX measures the cost of using options for insurance against a drop in the S&P 500 Index.  Hence, the two indexes typically move in direct opposite directions.

“Traders don’t want near-term insurance,” explains Jamie Tyrrell who trades VIX options for Group One Trading.  Tyrrell does say traders are betting that volatility will pick up this summer.  “June futures are still pricing long-term volatility in the mid 20s.”

The VIX closed on Friday at 14.43, a far cry from last year’s high of 48.00 or October  2008’s record intraday peak of 96.40.

Contrarians often look for extremes in this fear gauge for market inflections, or warning signs.  

“It’s a yellow flag with the VIX this low,” says Richard Peterson, Director of Global Markets Intelligence at McGraw-Hill Financial.

Investors may feel they don’t need to buy puts as insurance.  After all, central banks have shown their willingness to support risk assets through programs such as the Federal Reserve’s so-called Operation Twist bond-buying program or the European Central Bank’s low-interest, bank lending scheme known as Long Term Refinancing Operations (LTRO).

Peterson says “risk has been on for all of 2012.  At this point, the Fed strategy of pushing investors into riskier assets as opposed to other vehicles has been a factor.  Investors also recognize corporate earnings will be on the ascent for Fiscal Year 2012. “

BCA Research was even blunter in assigning credit for the rally in a recent note entitled, “Global equity markets:  Thank you central bankers.”  The strategy piece asserted, “With virtually all central banks in easing mode, and in the absence of negative exogenous shocks, the tendency will be for stock prices to rise.”

Still, strategists remain wary of the myriad known issues from slowing global economies to sovereign debt crises to unrest in the Middle East that may stymie further stock gains, never mind the unexpected ones.

Morgan Stanley equity strategists recently noted that “investors are fairly sanguine about the near-term outlook, as evidenced by the sharp drop in volatility.  However, such complacency isn’t warranted given the risks…with valuations no longer cheap, we are cautious about the markets grinding higher without a tactical correction.”

Michael McCarty, managing partner at Differential Research and author of the forthcoming book “Risk-on/Risk-Off; Trading and Managing Volatility," says realized stock market volatility is now at about half its historical levels.  

“So either equities are half as risky as their long-term historic averages and there are not any big risks in the world, or we are way too complacent….(stocks} may keep rising but we are not pricing risk correctly.”

In other words, investors who think the market is comfortably forecasting smooth seas ahead may want to cue up the alt-rock song “Fear Itself” and pay attention to the band’s name behind that tune -- Rogue Wave.