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Market fear factors could linger Thursday

After Wednesday's market turbulence, traders will be watching Thursday's economic reports for any further indications the U.S. economy is running into headwinds.

Stocks sold off sharply but erased much of their losses Wednesday, with the S&P 500 closing 0.8 percent lower at 1862. Stock futures were lower late Wednesday. Netflix, a popular momentum name, dipped 25 percent in afterhours trading after reporting disappointing subscriber growth.

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Disappointing economic reports – weaker retail sales, a decline in producer prices and a surprising drop in the Empire State index – were one catalyst for Wednesday's selloff. Thursday's data includes weekly jobless claims at 8:30 a.m. ET, industrial production at 9:15 a.m. and the Philadelphia Federal Reserve survey and National Association of Home Builders sentiment survey, at 10 a.m. Treasury capital flow data is due at 9 a.m.

Stock traders will also turn their focus to earnings Thursday morning, particularly Goldman Sachs ahead of the opening bell and Google, after the market close. Earnings are also expected from Blackstone, Delta Airlines, UnitedHealth, Baker Hughes, Snap-on, Mattel, Winnebago, Cypress Semiconductor, Fifth Third, First Republic Bank and PPG ahead of the open. Capital One, SanDisk, Stryker, Advanced Micro and Schlumberger report after the closing bell. An Apple product announcement at 1 p.m. should also catch the market's attention.

Traders on the floor of the New York Stock Exchange, October 15, 2014.
Brendan McDermid | Reuters
Traders on the floor of the New York Stock Exchange, October 15, 2014.

Bonds also had a wild day Wednesday, with a historic jump in the price of the 30-year bond. The 10-year yield also had its biggest intraday swing in six years, with rates dipping dramatically before retracing some of the decline. Bond yields move inversely to price.

"The retail sales…called into question the U.S. market's stalwart role in the global economic food chain. China growth is slowing. Europe is threatening to enter recession. Most were looking to the U.S. to be the anchor and then you have sales that result in downgrades to GDP (gross domestic product) estimates. That really kicked the market in the pants when it came out," said Adrian Miller, director of fixed income strategy at GMP Securities. Miller said the market also was concerned about news reports on Ebola and the potential breakdown of the AbbVie-Shire merger was a negative sign for equities.

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Miller said the sharp move in the Treasury market had the look of capitulation. "A lot of the buy side were set up well underweight Treasurys going into September and October because the U.S. economy was doing better and the Fed was talking about hiking rates," he said, noting short contracts reported by the CFTC ballooned. But third quarter data began to look mixed. "All of a sudden you had all that bearishness on bonds. It looked like the fuse was lit by the retail sales number."

Stocks had their own drama, with the Dow losing 460 points before closing off just 173 points, at 16,141. The Russell 2000 and Dow Transports were bright spots, both turning higher in the final hour to finish with gains. The Russell was up 1 percent, and some traders saw it as a sign the market may be trying to bottom since it was the Russell's which led the broader market's decline.

Markets were also soured by more economic concerns in Europe and on reports that Athens may want to drop out of its bailout program.

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Scott Redler, partner at T3Live.com, said he's watching to see if there is any follow through to the late day bounce, but he noted that Netflix could weigh on high beta names.

"The market had a very nice reversal on very heavy volume. It did give traders like me a green light to look for some quality longs," he said. "Tomorrow and Friday are going to be interesting to see if the (S&P) 1820 low we put in was enough. It was 9.5 percent. That was a half percent above what could have been a 10 percent correction from highs, and also a percent away from the macro trend that's been in place since 2011. It will be important to see if that holds."

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"What would be chaotic is if we trade lower tomorrow and trade back down to today's lows," he said.