The bull market is seeing the equivalent of its first gray hairs.
Just take a look at the blast of merger activity Tuesday. Three big drug companies engaged in a swap of assets that reshapes a chunk of that industry's landscape, and an activist joined forces with serial acquirer Valeant to make a $46 billion run at Allergan, the company that makes Botox.
Although it is not yet an overheated deal arena, it is the best pace for deals in seven years and deal activity tends to come closer to the end of bull runs.
Late cycle is what they call it, and while it does not mean an end to the bull market, it means the end is closer than the beginning. Despite a small cap rally Tuesday, some analysts say the leadership from that group is likely over and big cap should lead the market through this part of the cycle.
"I think it's safe to say we're two thirds of the way through this thing," said Oppenheimer Asset Management's Andrew Burkly of the bull market. Burkly, head of institutional portfolio strategy, says the market can continue to move higher for now but in choppy trading.
The deal news and a string of positive earnings helped push stocks higher Tuesday. A number of heavyweights report earnings before the opening bell Wednesday, including Boeing and Procter and Gamble—and after the bell reports from Apple and Facebook will keep the focus on tech.
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The rose for a sixth day Tuesday, ending at 1,879, up 7 points, and the Dow was up 65 points at 16,514. The Nasdaq gained nearly a percent to 4,161, and the Russell 2000 rose 1.2 percent to 1,155. The IBB iShares Nasdaq Biotech ETF was up 3.3 percent Tuesday, and rose further after the bell. The Dow Transports set a new all- time high.
"I think we'll go on to make new highs," Burkly said. "I don't know if it's a dynamic new high, but I think in the near term most indexes will go out and make new highs. I just don't know if it's a breakaway move. We just still think we're in this volatile back and forth action for a while." He said two important drivers are affecting the market—one positive is that economic data is improving after the impact of winter weather—and the other trend is the clear shift in market focus to valuation.
Burkly said the selloff that swept through momentum names appears to be over, but he still sees the Russell 2000 as problematic and would sell into any strength.
Macneil Curry, head of global technical strategy at Bank of America Merrill Lynch, said he is constructive for now on the S&P 500, but he also sees smaller names lagging. He said the S&P 500 took out its April 10 high and it's likely to test the April 4 all-time high near 1898. "It could possibly then extend through the 1900s to 1925/1926," he said.
But Curry said technically the Russell 2000 and Nasdaq, both up about a percent on Tuesday, don't look good. Both indexes troughed in more than 9 percent declines from March highs last week, as momentum names sold off. The biggest losers had been the biggest winners, among the internet, social media and biotech sector.
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"There's definitely a lot of issues. If you look at the Nasdaq, you look at the Russell and the Nasdaq biotech stocks. They're not looking like they're going to make new highs," he said. "More needs to be seen…It looks more like we're trying to carve out the right shoulder of a head and shoulders top. That's the risk. What potentially could happen is you push to a new high in the S&P, the others fail to conform and you start to roll over."
Curry said the market is also heading into a period of negative seasonality, meaning it often performs poorly in the early spring through early fall of mid-term election years. The old Wall Street adage is 'sell in May and go away,' until the market recovers in the fall.
The pace of merger activity since the start of the year is at the fastest pace than at any time during the bull market that started five years ago last month. According to S&P Capital/IQ, the $960 billion in global deals so far this year, is just shy of the $1.1 trillion in deals during the same time frame in 2007. It also tops the $694 billion last year.
The merger activity could be a tail wind for stocks, particularly in sectors where the deals are focused. "I think it's a sign of confidence. It's a sign that CEOs are finally seeing things improve enough to where they're putting money to work. Health care seems to be front and center. Tech is a good hunting ground, especially small cap tech. You have a lot of bigger players with a lot of cash," said Burkly.
Besides the deal flow, analysts are also looking at the high percent of frothy IPOs that have come to market with negative earnings, the most since 2000.
But Curry said even if the market does sell off, it will still resume its climb. "We're in a secular bull market. We could go a lot higher," he said.
As for the bond market, Curry said it is signaling higher yields. On Tuesday, the short and intermediate dated Treasurys sold off, driving yields higher. Tuesday's 2-year note auction was disappointing. There is a $35 billion 5-year auction at 1 p.m. Wednesday.
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"The five is setting up for a break out," he said. "It says yields are moving higher." He has a target of 2.02 to 2.05 percent yield.
The 10-year yield was at 2.72 percent, the mid-point of its 2.60 to 2.82 percent range. "The risk is the 10s trade to the upside of that range. I think for now it's a choppy range trade," he said.
What to watch
Dozens of earnings are expected Wednesday morning, including Delta Air Lines, Dow Chemical, General Dynamics, Norfolk Southern, TD Ameritrade, EMC, Snapple, Federal Mogul, Omnicare, LPL Financial, Northrop Grumman, Ingersoll-Rand, Motorola Solutions and Snapple. Besides Apple and Facebook after the bell, reports are expected from Qualcomm, Texas Instruments, Raymond James, Zynga and ETrade.
Also ahead of the bell is Markit Manufacturing PMI at 8:58 a.m. ET. New home sales are reported at 10 a.m.
—By CNBC's Patti Domm. Follow her on Twitter @pattidomm.