Stocks closed out April with a bang, and while traders may not sell in May this year, the divergence between the large cap and value plays, and the small caps and momentum names, could continue.
The Dow closed at a record high Wednesday, its first of the year, and it is back to where it started in 2014. The Dow was up 0.8 percent in April, after rising 8 points Wednesday to 16,580. But the Nasdaq and small cap Russell 2000 finished the month with losses.
Traders are watching the 1,885 level on the as the next hurdle for big caps, after the S&P broke out of a recent resistance band between 1,877 and 1,881. The S&P 500, up 5 points at 1,883 Wednesday, is up 0.6 percent for the month of April and is up 1.9 percent for the year so far.
Nasdaq was off 2 percent in April, to 4,114, and the Russell was off 4 percent at 1,126.
Read MoreSell in May and go away
There's plenty of naysayers, who say this is not the year to follow seasonality but that also doesn't mean the market will just see smooth sailing. They also say it may be time to "prune" or "weed" portfolios, but not sell the market or stay away.
The "sell in May, and stay away" adage comes true when the market sells off between May and the end of summer, before rebounding in the fall, and it only works about two-thirds of the time, according to Bespoke.
"This year, it was sell in March," said Steve Massocca, portfolio manager of the Wedbush Hedged Dividend Fund. "I think this valuation correction in the kooky names—whatever you want to call them—the 40 times revenues names—is going to continue," he said.
"There's a lot of hedge funds that have to liquidate. They own a lot of these names, and they'll continue to be for sale," he said.
But there could be more differentiation in the selling. For instance, Twitter was down more than 8.5 percent on disappointing results Wednesday, but other names such as Facebook and LinkedIn did not automatically sell off as they might have done several weeks ago. Trading at about $60 after hours, Facebook is still well off its March high of $72.59.
"Large swaths of the market are not overvalued and are not caught up in this. The market will be discerning about it. I'm looking for a mixed picture. This is going to be a stock picker's market," Massocca said.
Tobias Levkovich, chief U.S. equity strategist at Citigroup is among those who believes this is not the year to sell in May.
"We've argued the first half is going to be volatile, and we may not make a lot of money but we argue we'll do better in the second half as earnings growth improves," he told CNBC. Levkovich also said the recent burst of merger activity is not a sign of a top, and that the activist shareholders are actually making the large cap names even more attractive.
He also said the shakeout in momentum names was healthy for the market. "You want those things to get cleared out because they kind of distract from real fundamentals, and it's just chasing the latest hot stories," he said.
Analysts say one big factor that argues against "sell in May" is the improving economy. First-quarter GDP growth was nearly non-existent, up just 0.1 percent, about a percentage point below expectations.But the stock market looked past the data Wednesday, and many traders wrote off the weakness to bad winter weather.
"I think you buy in May because the economy is improving," said Art Hogan, chief market strategist at Wunderlich Securities. "All the leading indicators have reported a snap back in the economy. If we can see the continuation of that, you want to be investing here."
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The ADP payrolls report showed a 220,000 increase in jobs Wednesday, and traders looked at that April data as an encouraging sign versus the first-quarter GDP number. The April employment report is expected to come in at about 210,000 Friday, but traders say there are whisper numbers putting it closer to 250,000.
On Thursday, the data includes jobless claims at 8:30 a.m. ET and the important ISM manufacturing survey at 10 a.m. Personal income and spending is also reported at 8:30 a.m. Construction spending is released at 10 a.m., and automakers will report car sales throughout the day.
Joseph LaVorgna, chief U.S. economist at Deustche Bank, said he's looking for 240,000 in Friday's jobs report, up from 192,000 in March.
"The market is expecting a larger number but yields are nearthe lower end of the range. There's an interesting dichotomy that something's got to be resolved. When is the market going to re-price that the economy isgetting better," he said.
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While stocks rose Wednesday, bonds also rose and yields fell on the disappointing data but also month-end buying. The 10-year was at 2.64 percent late in the day, well off the earlier 2.72 percent it was at in the morning.
"If we're below 300,000 on (jobless) claims, and ISM is 55, that's telling the economy is better," he said. ISM is expected at 54.3, up from March's level of 53.7.
Car sales, expected throughout the day Thursday, are also being watched closely. They are expected to slip slightly to an annualized selling rate of 16.2 million, from March's 16.3 million.
There are dozens of earnings, including energy names such as ExxonMobil, Marathon Petroleum, and ConocoPhillips. MasterCard also reports, as does Clorox, Cardinal Health, Beazer Homes, Viacom, Generac, Domino's Pizza,Teva Pharma, Cigna, Becton Dickinson, Mylan Labs.
Expedia, Kraft Foods, Wynn Resorts, LinkedIn,OpenTable, PMC Sierra, Dresser Rand, Akamai, Mohawk, PublicStorage, Southwestern Energy and Vertex report after the close.
Fed Chair Janet Yellen speaks at 8:30 a.m. before the ICBA community bankers in Washington. The topic is community bank supervision. The Fed ended a two-day meeting Wednesday, with no surprises for the market. It said it would taper back its bond buying program by another $10 billion and noted the weather affected the economy.
—By CNBC's Patti Domm. Follow her on Twitter @pattidomm.