What to Do in Market Where No News Is Bad News

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The New York Stock Exchange floor.

Investors who thought they might find some correction fodder off the latest Federal Reserve deliberations got just the opposite Wednesday from a market that seems unwilling to process bad news.

Minutes from the March Fed Open Markets Committee meeting showed some of the strongest dissent yet over the central bank's money-creation machine. The central bank is using the fresh funds to buy $85 billion in Treasurys and mortgage-backed securities, despite concerns over future repercussions.

But while members contemplated a future exit, investors instead figured the poor batch of economic data released since the last meeting would change dissenters' minds and keep the market rolling past its record highs.

Consequently, the 2013 rally just kept on churning, leaving questions over whether squeamish investors ought to head for the sidelines or finally join in the party.

(Read More: Some Fed Members Fear Monetary Policy Effects)

"The market right now is in default mode, which is to go up," said John Canally, investment strategist and economist at LPL Financial. "We've been in the opposite situation in 2008 and 2009 where all news was bad news. In this market, pretty much any news is good news."

In many eyes, the stock market runup—which has seen the Standard & Poor's 500 and Dow Jones Industrial Average gain more than 10 percent apiece and reach new all-time highs—is tired and in need of a pullback before climbing higher.

But actual calls for playing defense are getting scarcer as the bull market appears to know no barriers, whether it be poor economic news like Friday's jobs report, the potentially contagious debt crisis in Europe, or any of the other threats that have pulled the market down in the past.

(Read More: Stocks Surge on Fed's Promise to Battle Weak Economy)

"There definitely are reasons to play defense," said Richard Ross, global technical strategist at Auerbach Grayson. "That being said, is there a reason to stand in front of a freight train? Not necessarily."

Ross thinks investors should be "trimming rather than building positions" ahead of a seasonally difficult time for the market with a strong "Sell in May and go away" trade setting up. But he hedges that it's "not a world-coming-to-an-end" call.

That advice, though seemingly contradictory, is heard a lot these days from strategists worried about a rally that seems overextended in a stock market that looks overbought when compared to longer-term averages.

Asked whether investors ought to just ride the market wave, Michael Cohn, chief investment strategist at Atlantis Asset Management, said, "For the time being, absolutely."

"It's going to get into a trajectory that's unsustainable," he said. "It's already a little bit ahead of itself. You've got to assume that it's going to get a lot ahead of itself."

For his strategy, Cohn said he is "just accumulating puts," meaning he is buying options that give him the ability to sell stocks that hit a certain level. He's focusing on cheaply priced out-of-the-money puts that cost him little but will pay off during a market pullback.

(CNBC Explains Put Options)

"The end of the tunnel is starting to get near, as in eight months from now," he said in reference to the end of the year, when the Fed has indicated it may start tapering its monthly asset purchases.

Frank Fantozzi, CEO of Planned Financial Services, said he has been moving money around from equities and Treasurys and putting it into popular high-yield— junk—corporate bonds as well as real estate. He expects a 5 percent market pullback that will give risk-averse investors opportunities to make more changes.

"People want to take some of the speed bumps out of their portfolios," Fantozzi said. "They've got to make some tactical changes."

(Read More: Looking for a Pullback Play? Try Going Global)

Even during such an aggressive run-up, it's been the defensive stocks that have been much more popular.

On the S&P 500, the best-performing sectors have been health care (up 16.7 percent) and consumer staples (up 14.7 percent), while the cyclical areas of materials (3.1 percent higher) and information technology (up 2.8 percent) have lagged.

The trade, then, has been to be in the market to stay as close to the safety rail as possible.

Cohn advises investors to watch materials stocks, because the rally "will end when those stocks rally."

In the meantime, the market faces not only declining economic indicators but also an earnings season in which negative pre-announcements have outnumbered positive by more than 4 to 1.

"The correction call has clearly become consensus, and that works against you at some point in time" said Art Hogan, managing partner at Lazard Capital Markets. "The soft patch in the economic data is such that the correction can happen here. It would be healthy, it's just not on us yet."