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Here's What Could Put the Brakes on Market Rally

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Investors hoping for a significant market pullback to provide a better entry point may have to wait a while.

Virtually all near-term stock market indicators are bullish, making last week's 2 percent drop in the Standard & Poor's 500 looking like little more than a bearish head-fake.

"Investors are ignoring risks everywhere at the start of the week giving greater billing to the bull market for stocks that took hold at the start of the year," said Andrew Wilkinson, chief economic strategist at Miller Tabak in New York. "The ferocious bull seems to fear nothing and cares not for the fact that Friday brings a new month and the long-awaited budget sequester."

Indeed, it's not that market participants don't have enough to worry about with the sequestration budget cuts looming that will take out $85 billion worth of government spending and sap about 0.6 percent from gross domestic product.

(Read More: Pullback? Pfff. These Pros Say 'Buy!')

It's just that they're choosing to focus attention elsewhere.

"Investors seem non-plussed by the potential impact not because they do not believe politicians could be this stupid as to let them happen, but because they feel confident that compromise will occur later," Wilkinson said.

Technical and momentum indicators point to little damage done to the longer-term market trend even though the S&P 500 ended Friday negative for the week but still up 6 percent for the year.

Importantly, the index held its 1495 support level, and other indicators are positive as well.

For instance, corporate buying has hit $110 billion in February, the highest level in five and a half years, according to Trim Tabs. That has come even though insiders essentially sat on their hands, buying just $80 million in the lowest month on record for the market research firm.

"Insiders are eager to use corporate cash to shrink the float, but they do not seem to be doing so because they think stock prices are cheap," Trim Tabs CEO David Santschi said in the firm's weekly report. " Like much of the rest of the world, they seem to be trying to take advantage of the easy money policies of central bankers."

Investors, in fact, seem to care about little else these days other than central bank policy.

(Read More: Who's Afraid of QE Ending? Not the Bond Market)

The looming budget sequester seems to carry almost no weight as the market expects either a compromise similar to the one that temporarily resolved the "fiscal cliff," or little for the planned cuts to have discernible impact.

On the other hand, worries that the Federal Reserve may be closer than expected to pulling the plug on the bond-buying quantitative easing program are what caused last week's blip and could be the biggest long-term market worry.

Minutes released last week from the January Fed meeting indicate some Open Markets Committee members are getting uncomfortable with potential long-term negative impacts from QE.

This week's congressional testimony from Chairman Ben Bernanke likely will provide a further peek into Fed thinking.

"What we think might have changed is that new research by the Fed's staff has persuaded a greater number of officials that further quantitative easing could undermine financial stability," Paul Ashworth, chief US economist at Capital Economics, said in an analysis.

"Given that Bernanke is scheduled to speak specifically about 'low long-term interest rates'...it is hard to believe that he won't flag up the costs as well as the benefits," he added.

Those costs have focused on potential threats of inflation as the Fed prints another $1 trillion this year, and the way low interest rates have forced many investors into buying junk bonds in the hunt for yield.

While inflation through traditional measures looks low now, rising gas prices—regular unleaded is at $3.77 a gallon nationwide, according to AAA—often have meant danger for the stock market.

(Read More: Why Gasoline Won't Hit $5 This Year)

In the three previous periods where gas has surged past $3.75 a gallon, the S&P 500 saw a minimum decline of 4 percent in August 2012 to a maximum 39.5 percent in May 2008 during the onset of the financial crisis, according to Bespoke Investment Group.

"If there is any consolation for the bulls, it is that with each time prices at the pump have hit the $3.75 level, the magnitude of the decline in equities was smaller," Bespoke said.

Finally, the market faces a Europe conundrum.

While headlines regarding the euro zone's sovereign debt crisis faded to the background in late 2012 and helped the rally, Italian elections this week are providing a reminder of the region's instability and have helped squelch what first looked like a strong push higher Monday.

So while the market looks strong in the near term, there's still plenty of potential turmoil ahead that central bankers may not be able to stave off.

-By CNBC.com's Jeff Cox. Follow him on Twitter at @JeffCoxCNBCcom.

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