'Selling stampede' not over

Consumer inflation data, housing starts and Goldman Sachs earnings are released Wednesday, but for markets it's falling oil prices that could have more impact.

Crude choked off a stock market rally Tuesday, when futures reversed course during the trading day. West Texas Intermediate oil futures ended down more than 3 percent at $28.46 per barrel.

U.S. stocks initially followed the lead of global equities markets early in the day and rallied hard on Chinese economic reports. The Dow gains peaked at 180 points, but the rally fizzled with falling oil, and the index ended up just 27 at 16,016. The S&P 500 rose 1 point to 1,881, after hitting upside resistance at 1,901, and retesting support at 1,867, last year's low.

Traders on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters
Traders on the floor of the New York Stock Exchange.

"I think we're in a selling stampede," said Jeff Saut, chief investment strategist at Raymond James. "Selling stampedes tend to last 17 to 25 sessions before they exhaust themselves. This is day 13, tomorrow is 14."

Saut said the market has a negative tone, and investors are bracing for more selling. "In talking to hedge funds and institutional accounts, they have not started lifting their hedges yet," he said. "Could we get a bounce? Yeah, but catch a falling knife and you tend to get your fingers cut."

Gina Martin Adams, institutional equity strategist at Wells Fargo Securities, said the way the market trades this week could be key to the length and depth of the correction. She said the S&P holding the 1,867 level is key, and the index could fall to 1,800 or below if it closes underneath that level.

Read MoreDeficit relative to economy will rise in 2016: CBO

"The reality is if we break the August low, there's really no support. You end up with just another panic-driven sell-off," she said.

Treasury yields did not reverse course as quickly as stocks, and they were higher on the day. The 10-year edged up to 2.05 percent, moving inversely to prices.

"I think people are still in freaked-out mode, and just don't really know what to make of things," said Ward McCarthy, chief financial economist at Jefferies. The bond market has seen some flight-to-safety buying but not nearly as aggressive as the selling in stocks has been. "I think we need a few days of stability before any conviction will return to the market ... I think on the fixed income side and Treasury side, they're waiting for the dust to settle."

Read MoreHow China can avoid a 2008-like crisis

McCarthy said the tight correlation recently between oil and stocks is not easily explained. "The world would be a better place if oil got it over with and went to down $20," he said. McCarthy said he's watching the 8:30 a.m. ET release of CPI and housing starts and building permits. CPI is expected to be unchanged.

"Inflation is going to be soft, but year-over-year comparisons are going to improve only because a year ago was when we got the deflation wave," he said. "Inflation is probably going to accelerate to 0.8 to 0.9 year over year."

Read MoreHere's your share of state pension shortfalls

Earnings are expected Wednesday from Goldman Sachs, TD Ameritrade, Northern Trust, Brinker International and Commerce Bancshares, before the bell. Companies reporting after the close include F5 Networks, Kinder Morgan, Raymond James, PTC, Texas Capital Bancshares, Plexus, CVB Financial and SLM.