The Dow tumbled 135 points Thursday, to 16,441, its worst decline since Nov. 7. The S&P 500 was off 16 at 1,831 and is now just four points away from erasing the gains it made during the Santa rally in the last several sessions of 2013, according to Jeff Hirsch, publisher of "Stock Trader's Almanac."
Markets were not only out of sorts Thursday but out of sync.
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"You had several things today that didn't all fit in. People were trying to tell me strength in the dollar fit in with weak stocks. You had the dollar up and gold up at the same time," said Art Cashin, director of floor operations at UBS.
He said another theory making the rounds was that investors were taking profits after holding off selling at the end of the year, delaying capital gains taxes until 2014.
Cashin said he is watching China, which triggered selling overnight after reports of weaker manufacturing data.
"They intimidated Europe and they intimidated us. I'll watch China to see if there's a carryover," he said.
(Read more: Art Cashin: 'Mild bafflement' on stock drop)
Treasury yields slipped even though ISM manufacturing data were positive and showed strength in new orders, usually a negative for bonds.The 10-year yield was below 3 percent again, at 2.99 percent, off two-and-a-half-year highs.
But perhaps one of the wildest market moves Thursday came in the oil market, where a late-day swoon triggered a "death cross." A death cross occurs when the 50-day moving average falls below the 200-day moving average. It is viewed as a bearish sign.
Oil slumped late in the session on expectations that Department of Energy inventory data Friday would show a buildup in supply and a drop in demand. West Texas Intermediate crude fell $2.98, to $95.44 per barrel.
"The 50-day crossing the 200—that probably contributed some of the selling pressure but that doesn't give you days of selling," said Gene McGillian, analyst with Tradition Energy. "There was definitely technical selling."
He said some of the selling came after the good manufacturing data signaled that the Fed would remain on its course to wind down quantitative easing, which is viewed as a positive for oil and other risk assets.
"The market kind of showed us last week when oil pushed above $100, and it couldn't hold, that the rally was overextended. I'm surprised by the severity of the collapse today," McGillian said.
Ninety dollars will be the next important level to keep an eye on, he said. EIA releases oil and refined product inventories at 11 a.m. ET on Friday, after the 10:30 a.m. ET report on natural gas inventories.
What else to watch
Carmakers release monthly auto sales Friday.
Speeches by Fed Chairman Ben Bernanke and Fed Gov. Jeremy Stein should be of interest Friday. Bernanke speaks at 2:30 p.m. ET, in what is likely to feel like a farewell appearance before he leaves office at the end of the month. Bernanke speaks to the American Economic Association on the changing Federal Reserve, followed by a Q&A with the audience of academic economists. Stein speaks earlier, at 1:15 p.m.
—By CNBC's Patti Domm. Follow here on Twitter