Most analysts believe the market is due for a modest correction, but many traders are reluctant to sell in the face of strong earnings, massive liquidity and daily deals.
"I don't think there's anything to be that bearish about," Stephen Leeb, research chairman for The Complete Investor, told CNBC.com. "There's no recession, valuations are basically very reasonable and there are massive amounts of cash on the sidelines."
This past week, the Dow powered to another record close and the S&P 500 closed in on its all-time high of 1527 reached in March 2000. After a week of tame consumer inflation data and more corporate mergers and buybacks, analysts were finding little reason to bail out of stocks.
"Being bearish in the stock market is a big difference then coming up and selling it," said Jim Iurio, director at TJM Institutional Services. "I don't have the guts to do that yet. I want to look for some indications that it's starting to break before I'm going to be the first one in to sell it because this market surprises a lot."
"I think one of the reasons why we won't get a breather is because everyone's looking for a breather," said Alec Young, equity market strategist for Standard & Poor's. "That means there's still plenty of money to come into the market. Obviously, the bull market is maturing, but we think there's further to go."
Analysts who believe the market will move higher say large cap stocks will likely be the biggest winners.
"One thing a lot of people have noticed is that the advance has narrowed," said Steve Goldman, chief market strategist at Weeden & Company. "With the economy slowing here, a lot of earnings growth is coming from overseas and larger companies are benefiting from that. However, the average stock is a bit more sluggish."
Analysts point to statistics that show the Dow up more than 8% year-to-date, while the Russell 2000 is only up about 3.6%.
"If you look at the Dow components, a majority of those companies are trading at 13 times 2008 earnings," said Steve Neimeth, portfolio manager at AIG SunAmerica Asset Management. "Twelve or 13 times earnings for Dow stocks, that's way too cheap."
"The Dow stocks were long overdue to appreciate," said Ted Parrish, co-portfolio manager for the Henssler Equity Fund. "The prices of those stocks are finally catching up with the fundamentals. Global liquidity is also playing a major role in holding stocks up and U.S. stocks are the cheapest. It doesn't make sense for money to exit those areas."
There is little major data due out next week and analysts believe the markets could be relatively quiet going into the Memorial Day Weekend. However, the housing dilemma will be on traders' minds when they get new and existing home sales data next week.
"The housing numbers would have to be big one way or another to move the market," said Parrish. "There was a Draconian outlook for housing and that hasn't panned out yet. Ben Bernanke said subprime is not going to roll over to other parts of the economy. I think that's a little premature, but he may be right."
Analysts will also be keeping an eye on oil prices. So far, even higher energy has failed to derail the stock market. Some analysts say a spike in crude oil could be the next bump in the road.
"If one thing can make investors nervous, it will be energy," said Leeb. "You are definitely seeing some strength in the energy patch and that could give investors an excuse to take some profits, about a 2 to 3% pullback, nothing dramatic."
Hedge Your Bets
Analysts recommend investors look for companies that will benefit from current market trends, such as high-quality large caps, energy and defensive plays.
SunAmerica's Neimeth likes Dow component Johnson & Johnson . "JNJ is trading at 14 times 2008 earnings with a 2.6% dividend yield," he said. "The stock has recently pulled back and Warren Buffett doubled down on it. How can you not own JNJ here?"
Neimeth also recommends another Dow component, Exxon Mobil , as a hedge play. "Exxon should benefit as oil prices continue to go higher," he said. "Owning this stock provides a hedge if there is turmoil in the Middle East. The risk to the market is energy, so you want to own some energy in your portfolio."
SunAmerica Asset Management owns both companies in its funds.
Leeb likes railroads, another Warren Buffet play, as a way to take advantage of higher gasoline prices. "Railroads are four times more fuel efficient than trucks," he said. "Trinity Industries makes railroad cars. It's very interesting here and not very expensive."
Leeb owns shares of Trinity Industries.
And Henssler Equity Fund's Parrish recommends investors stay fairly defensive. "Consumer staples are a good place to be now," he said. "We like Church & Dwight. It's like a small Proctor & Gamble with products, such as Arm & Hammer, that are in between the generic store brands and the higher-end names in growth areas."
Henssler Equity Fund owns Church & Dwight in its portfolio.
Phyllis Burke Goffney is a news editor for CNBC.com. She can be reached at email@example.com.