I believe that hedge funds are the largest determinant of intermediate term market direction these days. Real money investors (pensions, wealth funds, endowments) account for a larger portion of the market but they are largely longer term investors and don't trade as much. On the other hand hedge funds' "risk management" techniques have them cutting exposure when the market goes lower and adding exposure when the market goes higher, exacerbating moves. That is why I believe it is important to track their positioning.
Yesterday, I spoke about how hedge funds have largely derisked and it was unlikely that a great deal more of liquidations would come from them. However, I don't believe that hedge funds will necessarily jump back in the pool either. Economic data will likely be weak and the negative seasonality will likely dampen the market enough so that they don't feel the need to chase the market higher.
Many hedge funds were burned by their shorts at the March 2009 lows. Back then there were more short recommendations floating around than longs. The heavily shorted stocks trounced the market, which itself showed amazing returns. After being burned so badly hedge funds are likely shy about getting short. If hedge funds were short I would say that is a positive for the market but I don't get the sense that they are. Overall hedge fund positioning does not give great clues as to the markets direction although it is closer to being a bullish factor than a bearish factor.