NEW YORK (

TheStreet

) -- The market stormed higher once again this week, and there's not much to say that's terribly useful at this point. By way of explanation or warning.

All news is somehow getting twisted into good news, momentum is winning out over valuation, and while it's clear that stocks have at least a breather in store, what ultimately touches off the selling is still anyone's guess.

Here's the take of Sam Stovall, chief investment strategist at Standard & Poor's Equity Research earlier in the week: "Since a fighter is rarely felled by the punch he expects, the market will most likely be stunned by a totally unanticipated event, or will ultimately pay the price for ignoring the seriousness of the one-two combination emanating from the intensifying tensions in the Middle East or the steady increase in inflationary indicators."

That's about the size of it right now. Given how far the market's come, it's hard to say why/how it's able to continue to rally (beyond QE2). And it's equally as difficult to envision what will send it down (beyond ending QE2).

Look at what's happened just over the past three weeks as the

Dow

hardly broke a sweat while booking a 5% gain. The deepening political unrest in Bahrain and Iran gets shrugged off as if the outcome in the region is a known quantity. The data and much of the earnings commentary are providing clear evidence of rising prices. The job situation remains an unmitigated mess.

Yet the major equity indices continue to notch milestone after milestone. As has been widely observed already, the

S&P 500's

(SPX)

finish on Wednesday at 1,336 represented a doubling off its worst level of the financial crisis, an intraday dip to less than 667 on March 6, 2009. That 23-month climb back is the index's fastest pace to a 100% gain off a bear-market bottom since the Great Depression.

In his commentary, Stovall notes that in only eight of the previous 15 bear markets since 1932 did this even happen, and that the median was 49 months for that group to the achieve the feat. He also says the bull market continued in those cases for an average of another 12 months before hitting its top, and judging by the action this past week, that almost seems about right. That's how out of control the optimism has gotten.

Yes, as has been obvious for a while now, earnings season has been good. With more than 80% of the S&P 500 having reported their results, 71% have beaten Wall Street's consensus view, better than the typical quarter, which sees 62% of companies top the average analysts' estimate, according to

Thomson Reuters

. No complaints there.

But look at the waves of buying prompted by some of these better-than-expected reports. The action in

Weight Watchers International

(WTW) - Get Report

on Thursday was a prime example. A 45%-plus jump in a single session! The numbers and outlook were more than worthy of excitement, but it's comical to think the valuation proposition could change that dramatically on the strength of a single report. The spike in

Limelight Networks

(LLNW) - Get Report

was a

similar case

.

Revlon

(REV) - Get Report

too. There's a new one almost every day.

So we're still floating along on a QE2-fueled cloud of optimism. Talk about the need for a pullback just for the sake of appearances has heated up a bit, but very few seem willing to cash out and grab a seat on the sidelines, presumably for fear of missing out on even more gains.

That was the lesson learned by the

more than 100 hedge funds that sold shares of Apple (AAPL) - Get Report in the last half of 2010

as the stock hit record highs. The decision to sell was sound, considering the heights the stock was scaling and the lingering questions about the health of Steve Jobs. Yet the stock has hardly let up, reaching a new high of $364.90 this week as it's gained 12.6% so far in 2011.

So they've missed out, and as we

noted last week

, the argument is easily made that the shares remain reasonable from an earnings standpoint, trading at a forward price-to-earnings ratio of 13.4 based on Friday's close. So while in a vacuum they were probably right to sell Apple when they did, those hedge funds also turned out to be wrong. At least investors who sold stocks like

JDS Uniphase

(JDSU)

and

Netflix

(NFLX) - Get Report

when their run-ups were in their infancy (say up 50% from the start of September) can feel justified from a valuation standpoint.

That's the conundrum facing investors these days, determining how much of the run-up reflects real value and the progress made toward the economy's recovery, and how much is solely a product of QE2 and good old-fashioned momentum buying.

One data point that's indicative of growing proximity to a top is that retail investors have jumped into U.S. equity mutual funds and ETFs with both feet during this fantastic February. According to the latest data from

TrimTabs

, $10.8 billion has flowed into those vehicles so far this month vs. $1.7 billion in redemptions for global equity funds.

It's

been mentioned before

but we still seem to be in a sweet spot for U.S. equities right now, especially with earnings having held up their end. QE2 has another four months and change before it runs out, and it looks like

Federal Reserve

Chairman Ben Bernanke is

committed to running interference

on inflation in the interim.

Next week, another 60 or so companies in the S&P 500 report, essentially wrapping up reporting season. Very quickly after that, the next Fed meeting on March 15 will start to loom large, and the market may very well hark back to the minutes released this week detailing the Federal Open Market Committee's last confab in January. That's when the topic of pulling the plug on QE2 was discussed at more length than ever before ultimately being tabled.

By the time March rolls around, the tone of the discussion may have changed quite a bit if last week's PPI and CPI are any indication of what's to come.

Until then, it may very well be smooth sailing. After all, even the technicians are hard-pressed to explain what they're seeing on their charts.

"So besides the monetary, fiscal and soon-to-be currency stimulus, why has the market been so consistently buoyant?," wrote Mark Arbeter, the chief technical strategist at Standard & Poor's, in his commentary on Friday. "In our view, there just aren't any sellers."

Maybe it's that simple for the time being. No sellers, just enough buyers. Or as S&P's Arbeter said later in his note: "When the sellers disappear, it doesn't take much to push a market higher."

What it takes to push this one lower remains to be seen.

--

Written by Michael Baron in New York.

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