There is no joy on Wall Street, and frankly, the mood is getting worse.

On Wednesday, stocks hit a 5-1/2 year low on waves of selling stemming from a meltdown in financials. The group was down nearly 12 percent, with some big names like Citigroup at shocking lows.

At the same time, credit markets are getting dicey again, worrying traders who see no solutions to mend the ailing mortgage market.

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On Thursday, investors will be watching weekly jobless claims data, released at 8:30 a.m., and expected to come in at 505,000. The Philadelphia Fed survey is released at 10 a.m. as are leading indicators. At 2 p.m. Treasury Secretary Hank Paulson speaks on the economy at 2 p.m. at a lecture series at the Ronald Reagan Presidential Library.

Gamestop and Suntech Power report earnings ahead of the open, and Dell reports after the closing bell.

Markets Mayhem

The Dow Wednesday, skidded 427 points, or 5 percent, to 7997. The S&P 500 was down 53 points, or 6.1 percent to 806, a new intraday low. Credit markets, meanwhile, showed more signs of stress and have increasingly deteriorated since last week when Paulson said the financial bailout plan no longer intends to buy distressed mortgage securities.

That comment, and other comments from Paulson that he would not seek to use new money from the bailout fund has spooked investors who see the healing process in credit markets reversing. It also put in doubt the outlook for those bundles of toxic mortgage securities, held on the books of banks and insurers. At the same time, investors had been looking for a sign from the incoming Obama Administration on how it will handle the crisis.

As Washington focuses on a bailout of the auto industry , markets are fretting more about the financial bailout.

The Fed didn't help the mood either Wednesday when it released its forecast and minutes from its last meeting. The Fed now expects the U.S. economy to contract for as much as a year with the risk the slowdown could go on even longer. Fed officials now expect the economy to contract moderately in the second half of this year and the first half of 2009. That means the Fed now sees a recession lasting a year.

TARP-pedoed

"It feels really bad again," said Greg Peters, Morgan Stanley global head of fixed income research. "My positive leanings have really come under question in the last week, and the past couple of days."

He pegged the credit markets' decline to Paulson's reversal on what the $700 billion TARP (bailout fund) would be used for.

"Everything is so fragile ... Any level of disappointment just crushes it," he said of the markets.

"There's not going to be any real tangible solution around housing or mortgages for quite some time to come. That realization is affecting CMBX, ABX in addition to the other stuff as well. There's just a confluence in the last couple of days ... It's staggering the kind of declines we're seeing - even investment grade corporate ... high yield is trading down. Everything is trading off on it," he said.

Traders in the stock market had been particularly watching spreads widen on commercial mortgage-backed securities, where they fear a cascade of defaults.

It's no surprise that Treasury debt prices rallied, as investors moved into the safe haven securities. That pushed the two-year's yield to 1.11 percent, while the 10-year yield fell to 3.39 percent. The 30-year, meanwhile, rose three points with its yield dropping to 3.92 percent, the lowest level since 1961, according to Reuters. On the other end of the spectrum, flight to quality buying also pushed the yields on T-bills lower, with the three-month falling to 0.07 percent.

Getting Technical

The S&P 500 broke through 818, an intraday low set last week. Technicians were watching that level very closely to see if the market would find support there.

• S&P 500: Heading for a Recession or Depression?

Natixis Bleichroder technical analyst John Roque said he frankly didn't expect that level to hold. "Breaking of the support today was something we had been expecting. We think there was no support and we thought it was going to fail," he said.

Roque said his downside target on the S&P is 680. ouch. "I think that the trend is down. I think the number is reasonable. I don't know what the time frame is. We're still in a bear market," he said.

Oil Drip, Drip
Crude fell again , dropping 1.4 percent to $53.62 per barrel. The CRB index of 19 commodities fell 0.74 percent, its lowest level since September, 2003.

Questions? Comments? marketinsider@cnbc.com

Yesterday, I reported on a new study that showed even a big drop in gasoline prices has not made consumers more comfortable with spending on discretionary items. The issue is not so much whether you think gasoline below $2 a gallon is cheap, but whether you feel like you really can open your wallet for things you might not need in these uncertain times.

There's a comfort in holding onto your cash right now. But from a more macro view, it's important what we consumers think and do. The U.S. economy depends on the consumer to keep it going. So does the global economy. In fact, the American consumer is estimated to account for about 20 percent of global GDP.

Below are some thoughts from our readers, and please take the time to tell us what you think.

From Dave J.:
Gas is not cheap.......................It may be cheaper but it is not cheap..............The run up in Energy has pissed off the consumer and rightfully so......................Fix the Futures Market so this Bubble does not happen again..

From Dennis L.:
"Cheap gas...people have been scared and they are paying down debt. "

And from Utpal J. in India:
"It's a structural problem and one that respects psychology and behavior much more than mere cash in hand. Humans are not electric switches which can be turned on and off.

Besides the havoc that has happened will make US to curb their useless expenditure. and will also force the corporat(ion)s to become lean.

The percentage of margin which US corporat(ion)s make is not sustainable nor is available anywhere in this world except Europe and Japan.

World will not lend to US nor US consumer will borrow mindlessly. This will result in great savings and this savings will be deployed in countries which can generate better sustainable return.

The world will see contraction in value terms for years to come ; even if it makes up with quantity in two or three year."

Questions? Comments? marketinsider@cnbc.com

If you think the economy feels bad, by the end of the fourth quarter it could get downright depressing based on the worst case scenarios some economists are kicking around. But hopefully, we won't see those worst cases, and anything less could be a relief.

Goldman Sachs economists did an exercise where they set some very negative forecasts against the fourth quarter to see just what worst case GDP might look like. Their current forecast is for a decline of 3.5 percent in annualized "growth," but in a "just awful" environment they get to minus 6 percent. Worst case? That would be a 7.8 percent decline.

They have not changed their own outlook, but say they have begun to wonder if there could be a bigger decline then they've predicted, they said in a note this week.

"For the pessimistic but plausible -6 percent scenario to become a reality, we would need to see some very bad numbers over the next several weeks; in some sectors of the economy, a further acceleration in the pace of decline - and/or significant downward revisions to already-reported numbers," they wrote in a note.

To get to that number, the economists said it might take a nasty combination of declines in real consumer spending of 0.5 per cent per month (the likely rate for October and consistent with retail sales declines of 2 percent or more); residential construction outlays falling 3 percent a month; nondefense capital goods shipments slumping 1.2 percent per month, and a considerable decline in government spending. There would also have to be a lack of support from trade.

Deutsche Bank chief U.S. economist Joseph LaVorgna was also crunching numbers this week and he says he came up with a worst case scenario for GDP to shrink by 8 percent in the fourth quarter after the third quarter's decline of 0.3 percent. His forecast though is for a 4.5 percent decline.

Shrinking 8 percent?
"It's definitely possible. The bulk of it is likely to be capital spending and inventories. Consumer spending will be down again," said LaVorgna. In a note, he wrote: "The primary reason we have not shifted to that extreme view, at least not as of yet, is due to a projected collapse in inflation this quarter, led by what we expect to be at least a 0.6 percent decline in October headline CPI and a roughly 4 percent decline this quarter compared to a nearly 7 percent increase last quarter."

• Consumer Prices Take Record Drop in October

In his note, he said "the current credit shock bears some rough similarities to the imposition of credit controls in Q2 1980 when the economy shrank by 8 percent."

He said Tuesday's NAHB homebuilders sentiment index, which fell to a new low, suggests housing activity will weaken even further from current record lows. "We are even more worried about what happens beyond the current quarter, especially if the Big 3 auto makers ultimately will file for bankruptcy. If this occurs, the impact on the economy could be catastrophic."

• Big Three: Give Congress A Reason To Buy Bailout—And Fast

For now, his forecast is that the first quarter declines 1 percent, but that number of course could change. "A big part of it is if you don't get the inventory drag in the fourth quarter, you get it in the first quarter," he said.

Questions? Comments? marketinsider@cnbc.com

Consumer inflation data, more retailers' earnings, and another day of auto executives on Capitol Hill are on tap for Wednesday.

Stocks perked up ahead of Tuesday's close as buy programs swept the market after a volatile day. The Dow was up 151, or 1.8 percent, its third gain in 10 sessions, and the S&P 500 rose 8, nearly 1 percent to 859. But this was not without a roller coaster ride for the Dow which moved more than 300 points, and was deep in negative territory.

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"It's a tug of war with the awful economic news we're getting," said Robert Harrington, head of the block desk at UBS.

"We got a little reprieve with Hewlett Packard, and energy acted a little better," he said of Tuesday's market. Hewlett Packard gave a surprisingly bullish earnings preview before the opening bell. Its stock jumped 14.5 percent, and the information technology sector rose nearly 2 percent. Energy stocks were the best performers, gaining 3.3 percent.

Harrington said the stock market was rattled during the day Tuesday by dislocation in the commercial mortgage market. Treasury Secretary Hank Paulson's comments last week that the financial bailout no longer planned to buy troubled mortgage securities has caused investors to recalculate positions in that market. Also, Credit Suisse reportedly issued a report warning that two loans in a debt deal sold this year are at risk of default, adding to fears of weakness in the market.

Look Ahead

For Wednesday, traders are watching the CPI, consumer level inflation data, reported at 8:30 a.m. The PPI, reported Tuesday, fell by a record 2.8 percent last month, exceeding expectations of a 1.8 percent decline. Consumer prices are expected to fall 0.8 percent in October. Other important economic news Wednesday includes housing starts and building permits, also at 8:30. The minutes of the last Fed meeting are released at 2 p.m.

Auto Blues

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Executives of the Big Three auto makers, grilled by a Senate panel Tuesday, return to Congress to plead their case before the House Financial Services Committee at 10 a.m. Votes on a possible bailout for the automakers could come by Thursday.

Fed speakers include Fed Vice Chairman Donald Kohn who speaks on monetary policy and asset prices at the Cato institute's Monetary Policy conference in Washington at 9 a.m. Richmond Fed President Jeffrey Lacker speaks at 1:30 p.m. at the same conference on lessons from the subprime crisis.

Even cheap gasoline isn't enough to fuel consumer spending. In a recent consumer survey, 76 percent said they were not willing to spend more for non-essential goods and services even with a more than dollar per gallon decline in the price of gasoline in the last month.

Since mid-September, as news of the financial crises worsened, the U.S. consumer has been on a spending strike.

The survey, conducted late last week for the International Council of Shopping Centers and Goldman Sachs, shows that dropping gasoline prices spurred spending only modestly. Twenty-three percent of consumers did say they would spend more on things like consumer electronics, restaurants, apparel and jewelry. Yet, only 9 percent of the 1,000 questioned said they would spend considerably more.

Store sales data backs this up. For the first time in five years, the ICSC-Goldman Sachs weekly chain store sales snap shot shows that weekly chain store sales fell on a year-over-year basis. Sales, for the week ending Nov. 15, declined 0.1 percent compared to last year, and a slight 0.3 percent gain compared to the week earlier.

And of course, most retailers reporting earnings this week have shown that things are not good as the holiday season gets underway and are not likely to get better in the near future. Saks today posted a worse than expected loss even as it slashes prices to attract shoppers to its upscale stores. The company's CEO described consumers as being in "frozen mode," and Saks says it is not adverse to closing stores.

Wal-Mart US CEO Eduardo Castro-Wright, speaking at a Morgan Stanley conference, said that chain's traffic has actually been helped by falling gasoline prices. He said as gas prices rose this year, shoppers cut back on trips to rural stores, but as prices fell in October traffic increased to rural and urban stores. But Wal-Mart is one of the bright spots in the retail sector.

"One would think that you would get some lift from gasoline prices, but we argue that it's really offset by the contraction in employment," said Michael Niemira, ICSC chief economist.

"We're still in a pretty deep hole, and it will take a while to come out of it," he said. "The issue is whether this is the low or whether there is more downside."

For November, Niemira expects chain store sales to fall by 1 percent, but he said the comparisons for December get better. That, in part, is because Thanksgiving is so late in November this year. For December, he says comparisons could improve to a 1.5 to 2 percent increase.

One factor that is helping the picture is the strength of Wal-Mart. Wal-Mart in October saw same store sales rise 2.4 percent, better than the 1.6 percent increase expected. But many store chains saw double digit declines.

"We're still locked in that kind of pattern definitely for November. The Arithmetic is awful for November. A lot of the apparel and department stores will see big declines, anything from 5 percent to double digits," he said. "November is likely to be down 1 percent but it's worse beneath the surface. The only number it's not worse in the aggregate number is Wal-Mart," he said.

• UPS Cranks Up Its Sleigh for Dec. 18

Questions? Comments? marketinsider@cnbc.com

Investors will have an eye on Washington Tuesday as bailouts past and future are discussed on Capital Hill.

Traders expect another volatile and, probably cranky day for stocks. On Monday, the market lost another 2.5 percent in a rocky day of trading. The financials were the biggest losers, down nearly 6 percent after Citigroup said it would cut another 50,000 employees, and investors continue to worry that the group's problems are far from over.

Tuesday's important hearings start with the House Financial Services Committee on financial bailouts, featuring Fed Chairman Ben Bernanke, Treasury Secretary Hank Paulson and FDIC Chairwoman Sheila Bair. The hearing convenes right at the opening bell. Interesting to see will be what Rep. Barney Frank's committee has to say about the financial bailouts as much as the testimony of the three regulators.

Then later in the day, CEOs of the big three U.S. auto makers and the head of the UAW testify before the Senate Banking Committee at 3 p.m. The struggling industry will plead its case for a bailout.

The prospects of a General Motors bankruptcy has been spooking the markets, which fear the rippling loss of jobs and business failures that could result. "It's a gargantuan issue," said Art Hogan of Jefferies. "I would say Washington certainly has its back up against the wall as far as Detroit goes. It's not a function of "if." It is a function of "how" it gets some assistance."

Auto Blues

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Senate Democrats propose legislation giving auto makers and suppliers $25 billion in loans from the $700 million financial bailout fund. The companies would have to produce a plan for long term financial viability and cut bonuses for executives making more than $250,000 a year. The Bush Administration has opposed using the bailout fund and says other sources should be used. It also criticizes the Senate proposal for its failure to demand an industry restructuring.

What strings are attached to a bailout will be the topic of much debate, and the timing will be key. GM has warned it is running low on cash and some fear it will be too late to rescue if Congress doesn't act in the next few days of the current lame duck session.

Econorama

Producer price inflation data, reported at 8:30 a.m. Tuesday, should show inflationary pressures relaxing in October. Economists expect a decline of 1.9 percent core, and an increase of 0.2 percent, excluding food and energy. Treasury international capital flow data is reported at 9 a.m. It is expected to show net purchases of $27.2 billion.

At 1 p.m., the National Association of Home Builders survey is reported.

Retailers Home Depot and Saks report earnings before the opening bell. Home Depot rival Lowe's posted better-than-expected third quarter results Monday though profits were down 24 percent.

Yahoo! shares may get some attention in early trading after CEO and co-founder Jerry Yang agreed to step down Monday evening. Yahoo! said it is conducting a search for his replacement, and that he will stay on until one is found. Yang was seen as a major obstacle in Microsoft's bid for the company earlier this year.

Markets Mayhem

The Dow lost 223 points or 2.6 percent to 8273 Monday, while the S&P 500 fell 22 points, or 2.6 percent to 850.75.

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Treasurys rose, lowering the yield on the 10-year to 3.686 percent. The dollar gained 0.32 percent against the euro and fell 0.69 percent against the yen Monday.

In energy markets, crude slumped another $2.09 per barrel, or 3.7 percent to $54.95, its lowest close since January, 2007, and a 62 percent decline from its July 3 record high. Hogan said oil's decline was once a positive for stocks. Now it's not. "We'd like to see it stabilize so we can stop seeing it as a poster child for global recession," he said.

Hogan said the stock market is beset by negativism. "The biggest negative catalyst there's been is the fairy tale of hedge fund redemptions," he said of market action in the last several sessions. "It's negative market sentiment in general. The good news is the increase in volatility we've seen, which is unprecedented by any stretch of the imagination, is caused by two things. There's a lack of liquidity and a great deal of uncertainty. The good news is that it is exactly what happens when you're approaching a bottom."

This "bottom" has been elusive. "It's a long approach. It's like coming in from an overseas flight," he said.

Questions? Comments? marketinsider@cnbc.com

Thursday's wild action could draw some buyers into the stock market Friday.

But traders warn it could be another volatile day, and there will certainly be investors who use Thursday's gains to take profits.

Before the bell, Fed Chairman Ben Bernanke speaks in Frankfurt, Germany, starting at 8:30 a.m. Bernanke will participate in a panel discussion with European Central Bank President Jean-Claude Trichet on "International Interdependencies and Monetary Policy." Meanwhile, in Washington, leaders of G20 countries gather for a summit on the global financial crises.

Economic news Friday includes retail sales for October and import prices, reported at 8:30 a.m. Business inventories and consumer sentiment are released at 10 a.m.

J.C. Penney and Abercrombie and Fitchreport earnings, following a string of disappointing retailers' reports this week. Both Nordstrom and Kohl's issued warnings when they reported sharply lower earnings after Thursday's bell.

Markets Mayhem

Stocks Thursday made a 10 percent intraday journey from trough to peak before finishing with a nearly 7 percent gain. The Dow finished up 552 points at 8835, and the S&P 500 was up 58.99 at 911.29, again of 6.9 percent. Just after midday, the S&P fell through the closely watched 839 level reached on October 10. As it sprang back, the entire market moved higher.

"The breakdown through the old lows in the S&P could cause capitulation," said Tim Smalls of Execution LLC.

"When they reversed, I think that was a big part of it (the rally)," said Smalls. " As soon as they broke the low on the S&P, but held the low on the Dow, a lot of people put some money in."

"It was also more that the selling stopped than that the buying started. If you look at the intraday volumes, they were not huge to the buy side until this afternoon," he said. Smalls said it seems a lot of the selling from hedge fund redemptions expected this week may have already happened. Investors in many hedge funds must request withdraws for year end by Saturday.

Traders said the tone of President Bush's economic speech mid afternoon was viewed as a surprising positive by the market. On the eve of the G20 meeting, where the idea of a global financial regulatory structure will be discussed, he warned about too much regulation of financial markets.

G20something

Generation Y will be at the table for the first time this weekend when G20 gathers in Washington. There is something, clearly historic, but also sobering about the idea of the leaders of 20 nations, developed and developing, gathering to discuss a financial problem that could only have become as deep and entwined by the rapid globalization of the last 20 years.

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The BRIC countries - Brazil, Russia, India and China - met ahead of the meeting and issued a joint position calling for reform of institutions like the International Monetary Fund to reflect the growing importance of developing economies.

Robert Hormats, vice chairman of Goldman Sachs International, will appear on "Squawk Box" Friday, but in a phone interview ahead of that he said he doesn't expect any major action on a new global financial regulatory architecture. But he does see the group launching working groups that will tackle the ideas of financial markets regulation and transparency, among other issues.

"It underscores the fact that countries recognize the need to develop harmonious approaches to addressing this crisis and that is a huge difference between now and the 1930s when, as you may recall, many countries engaged in a whole series of beggar thy neighbor policies," such as protectionism and harmful exchange rate moves, he said. "By these harmful actions, they made the depression a whole lot worse than it might otherwise have been."

Significant, too, is that the developing nations have equal seats at the table, along side G7 countries. Those countries have a big stake in the outcome and will work to be part of the solution. "If there is conflict among countries in the way they address this, it will badly undermine the resolution process and make troubled markets that much more traumatized," he said.

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Financial markets are not pinning much hope on any major outcome of the meeting, but there are expectations that this is the first in a series of meetings. "This is really the launch of something that's going to continue into the next Administration and that's why nothing concrete can be agreed on, but that's not bad," he said.

Hormats also expects the IMF to play a bigger part in the global crises than would have been expected several months back. CNBC's Steve Liesman reported Thursday that one development from G20 may be that creditor nations, like China and Saudi Arabia, could pledge hundreds of billions of dollars to support aid programs for countries hurt by the credit crises. An IMF source told Liesman this would supplement IMF resources.

"Several months ago, it was fashionable to say the IMF was moribund, doing nothing. It ain't so now," Hormats said. He pointed to the recent announcement by IMF that it would provide liquidity to countries that have sound policies but have problems stemming from the credit crises. "They are playing a more important role. One constructive objective of this meeting would be to help support them in that role, which means more resources, but it also means adjusting their role so that they can do a better job ... They never played this role in terms of providing liquidity."

IMF was formed out of the 1944 Bretton Woods conference, as was the World Bank. This weekend's summit is being billed as a second Bretton Woods, but clearly one month of planning ahead of this meeting will not produce the results that were two years in the making in the 1940s.

Questions? Comments? marketinsider@cnbc.com

The painful selling in stocks has been so consistent this week, it's no surprise that some traders say the market could test October's lows before the week is over.

Intel's after-the-bell warning Wednesday will pressure tech names and the broader market Thursday morning. Intel says its fourth quarter business is below expectations , and its revenues are now expected to be $9 billion, more than 10 percent lower than expected. The warning sends ripples through tech but also raises concerns about business spending, a big driver of the economy.

Art Cashin of UBS says Thursday and Friday will be critical days for the market, and there could be a major move by the weekend.

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Cashin, UBS director of floor operations, wrote in his daily note Wednesday: "Markets remain nervous and range-bound. Since the 10/10 lows, they are trading a semi-rectangular pattern (the rectangle's altitude is compressing). It all hints that we're building to something major. Lots of fingers, cycles and models zero in on Thursday and Friday."

On Wednesday afternoon, as the stock market headed into the final minutes of trading, Cashin said in a phone interview that those two days are key for lots of reasons. "Even the stargazers got into the act," he said. Will stocks test the lows this week? "It's setting up for that. The last two days of the week are target days," he said.

One reason for selling pressure in the market is the real and feared redemptions from hedge funds. Saturday is the date by which investors in many hedge funds must decide whether they want to withdraw funds at year end.

Thursday Look Ahead

On Thursday, weekly jobless claims data and international trade are reported at 8:30 a.m.

A major earnings report from Wal-Martis expected before the bell. Retailers Kohl's and Nordstrom also report. Traders will be watching those retailers closely after negative comments from Best Buy and Macy'son Wednesday.

Markets Mayhem

Stocks lost about 5 percent Wednesday, with the S&P 500 down 46 points to 852.30 and the Dow tumbling 411 points to 8,282 . Traders point to the negative forecast from Best Buy for helping add fuel to the sell off. Best Buy says its sales will be down, and this is the most difficult environment it's ever seen. Those comments weren't the only factor though.

Treasury Secretary Hank Paulson spooked the market when he discussed the $700 billion Treasury Asset Relief Program. He said that the TARP's mission changed by the time it got Congressional approval. It turned into an instrument to inject capital into banks rather than to purchase distressed assets. Traders said those comments, while not unexpected, weighed on confidence.

Paulson also said autos would not qualify for the TARP, but Rep. Barney Frank, D-Mass. said Congress would discuss a new bailout for auto makers next week. The threatened failure of one or more of the big three has been a drag on the market.

The dollar continued its rally against the euro, as commodities and energy continued to move lower. Oil tumbled another 5.3 percent or $3.17 per barrel to $56.16. Stock traders say the lack of buying in oil has also been weighing on market psychology. They see the decline in crude as a vote that the global economy is losing steam at a rapid pace.

The dollar was at $1.2480 per euro, up 0.4 percent on the day.

Getting Technical

Scott Redler of T3Capital.com is one who thinks stocks could test October lows very shortly. The Oct. 10 intraday lows of 7,882 on the Dow and 839.80 on the S&P 500 are the levels to watch.

"Last time we were down here when the Dow was at 8,143... basically there wasn't enough weakness for it to test the lows and break the lows. We then had the election rally, and the shorts had to cover," said Redler.

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"If we pierce the intraday lows, some people who have stocks that are already in pain can't hold onto them. That's where they have to sell because they don't know if we're going to go to 7,600, 7,300, or 7,100. That's when the loose hands have to give up and throw in the towel. By breaking the lows and having that cascading effect, that cleans out that last level of investors that just cannot hold onto stocks. They keep selling every time we're up just to clean up their positions," said Redler.

How Cheap is Cheap

In the latest wipeout, some stocks are getting to levels that traders can't help but point out for the sheer shock value. One of those on Wednesday was Citicorp , which broke below $10. Google was another. Just less than a year after it soared over $700, it was trading below $300, a level it hasn't seen since 2005.

What Else to Watch

Philadelphia Fed President Charles Plosser speaks on the economy at 12 p.m., and Minneapolis Fed President Gary Stern is expected to speak at 2 p.m.

Investors can also watch as hedge funds are dragged before the House Oversight Committee which will hear from some heavyweights of the industry including John Paulson, Ken Griffin and George Soros, plus a panel of academics.

Questions? Comments? marketinsider@cnbc.com

Stocks are stuck in the bear market's tight grip and just can't shake loose, even for seemingly good news.

"The market will feel bad until it's not bad. I think that's the phase we're in. We went through the phase where everything looked cheap. That didn't work out so now we're in the phase of: 'I'm not going to buy it because I want to see the news first,'" said Robert Harrington of UBS.

Even with good news Tuesday, the market rallied, then sold off going into the closing bell as economic worries won out. Stocks had been moving up around the Federal Housing Finance Agency's announcement of a new plan to renegotiate hundreds of thousands of delinquent mortgage loans held by Fannie Mae and Freddie Mac. The plan comes as major banks work to renegotiate troubled loans in their own portfolios.

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Stocks staged a midday rally, with the Dow recovering to near breakeven from a decline of about 300 points. Traders said the FHFA plan was perceived as a positive because it would help the beaten down housing market and stave off more foreclosures. But the rally was short lived, and the Dow fell 176 to close at 8693, a decline of about 2 percent. The S&P 500 fell 20 or 2.2 percent to 898.95.

On Monday, stocks reversed early gains from China's stimulus package and instead fretted over negative headlines.

"The credit market is liquid because of the Fed and central banks, but we really haven't crossed over into that world of confidence again and we may not for a long time," said Harrington, head of block trading at UBS.

On Wednesday, investors will get earnings from Macy's ahead of the bell. Investors may also focus on late Tuesday comments from Goldman Sachs CEO Lloyd Blankfein who said the company plans to focus on its strategy and that it is well positioned to deal with the current environment.

There is no significant economic data Wednesday, but there are several speeches worth watching.

Bailout Blues

Treasury Secretary Hank Paulson speaks at 10:30 a.m. about the TARP, Troubled Asset Relief Program.

Meanwhile, Democrat Speaker of the House Nancy Pelosi Tuesday afternoon called for aid that would stretch the TARP over the troubled auto industry . The health of struggling auto makers is a new phobia for the markets, which worry a bankruptcy of any of the big three would cause significant ripples through the economy.

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How TARP funds will be used has been a big topic of interest as traders try to game which companies will receive funds and what the government aid will do in terms of fixing the broken economy and credit markets.

"We never threw money at a situation like this before so reading the tea leaves is not so easy," Harrington said.

Other speakers Wednesday include Fed Vice Chairman Donald Kohn who speaks in Luxembourg at 11 a.m. on productivity and innovation in financial services. Minneapolis Fed President Gary Stern speaks to the Minnesota Women's Economic Roundtable at 1 p.m.

The House Financial Services committee will hold a hearing on private sector cooperation with mortgage modifications, which will be attended by executives form Bank of America and J.P. Morgan.

Oil Drill

In Tuesday trading, materials and energy stocks were the worst performers, down 4 and 3 percent respectively. The dollar gained 1.68 percent against the euro, taking it to $1.2528 per euro.

Crude oil on the NYMEX fell $3.08 per barrel, or nearly 5 percent, to $59.33, the lowest close since March, 2007. RBOB gasoline futures fell 4.5 percent to $1.3059.

Like anxious relatives in a hospital room, investors have been watching the economy get sicker and sicker with new symptoms surfacing daily.