Strategas analysts sized up potential stock market winners and losers depending on which candidate wins the White House in November, and the results may not be as different as you might think. The analysts also came up with two most "out of consensus calls" if the Democrats sweep Congress on election day.

It's hard to see Friday's markets as anything but volatile after this past week's wild swings.
But if there are no out of the ordinary events, traders say the stock market just might quiet down late in the session as investors head off for one of the final weekends of the summer. Options expirations kept the market rocking this week, along with worry about the financials and plenty of outside influences from oil and the commodities markets.

Economic data for Friday includes:

• Empire state manufacturing survey at 8:30 a.m.
• Treasury International Capital data at 9 a.m.
• Industrial production at 9:15 .m.
• Consumer sentiment at 10 a.m.

Stocks will be on inflation watch Thursday. Volatile trading in oil and commodities promises to spill into the stock market again. On Wednesday, energy and other commodities rose, reversing a selling trend and worrying investors, who have been hoping for a reprieve from inflation.

Some hard data on inflation is also expected when the consumer price index is reported at 8:30 a.m. July CPI is expected to rise 0.4 percent.

Other important pre-opening reports include weekly jobless claims, expected to come in at 435,000, and Wal-mart's earnings. Investors will be watching Wal-mart's outlook and comments about the important back-to-school shopping season.

Market Mayhem

Wednesday's stock market was again skittish about the financial sector. The trigger was, in part, a Merrill Lynch downgrade of several firms. Stocks also took a hit as oil prices began bubbling up after weekly inventory showed declines in the supply of crude, gasoline and distillates in the last week. The oil market is also becoming more sensitive to news of Russia's military action in Georgia.

"This is not a trading tape. This is a Rorschach test. Anybody who looks at it can see whatever they want to see," said UBS' Art Cashin of Wednesday's stock market action.

The Dow fell 109.51 points, or 0.9 percent to 11,532, and the S&P 500 tumbled 3.76 points, or 0.3 percent to 1285.83.

Cashin, director of floor operations, said the "cocktail napkin" technicians thought the area where oil would find support was $110 to $113 per barrel. If it had broken down through that level, it could dip to $80. Or if not, it could bounce. Bounce it did, rising $2.99 per barrel Wednesday, or 2.7 percent to $116.

"The big deal is if it holds and closed over $115.60, it might have set the chart up for a real short squeeze. If it gets to $117, it will trap those shorts," he said. Energy stocks were Wednesday's winners, gaining 3.4 percent.

Also critical Thursday will be what happens in the financial sector, which was down nearly 3 percent Wednesday after a more than 5 percent decline Tuesday. Merrill Lynch downgraded Citigroup, Goldman Sachs and Lehman to underperform Wednesday. Merrill's chief investment strategist Richard Bernstein also said the credit crises is broad and deep and not likely to end soon, a comment that also sent a chill through the sector

Birinyi Associates points out today that Wall Street's strategists are even more bullish this month than they were at the start of the year.

In fact, they are forecasting a 16 percent gain in the S&P 500 between now and the end of the year, compared to a 12 percent gain at the start of the year.

Jeff Rubin of Birinyi makes this point in a note today, and he also says that "strategists have been less than prescient these past ten years." Their August forecasts have only been rosier twice in that period, he says, and both of those times they were way wrong.

In 2001, the August forecast was for a 19 percent gain, and it was instead an 18 percent decline. The next year they were wrong again. They forecast a 17 percent gain, and the market landed a 21 percent decline.

• Fund Managers: Why They Say It's Time to Buy America

Because of the market's decline, the average targets are now 184 points below where they started the year. Their average target has gone from 1642 at year end to a current forecast of 1458. (The S&P 500 right now is battling to hold a level of 1285.)

I called Rubin to find out more about his report. He compiled the forecasts of strategists at 11 sell side firms, including the Wall Street majors. "One other interesting thing is they always are bulilsh. I feel like in every Augsut in the last 10 years, it's always green," he said. "Their job is to sell stocks."

I looked at a chart Rubin included in his note for the years they got it right. 2003 was one. They forecast an increase of just over 5 percent and got it. But since then the forecasts and actual results have not lined up.

CNBC.com readers, in my view, are pretty prescient in their own view of the market. We would love to hear what you think.

Questions? Comments? marketinsider@cnbc.com

The U.S. is back, and fund managers around the world say it's time to buy America.

Today, Merrill Lynch's monthly global fund manager survey confirms this market idea we've been hearing about as the dollar has been moving higher. This "group think" on American assets, as one trader put it to me last week, is driving buyers into the dollar and stocks. (this is in general, certainly not today)

Of 117 participating fund managers, Merrill says 63 percent expect the U.S. dollar to appreciate the most on a trade weighted basis in the next 12 months, and 48 percent say the U.S. is the region they most want to overweight in that period. Those numbers were 54 percent and 45 percent, respectively in July.

On the other hand, 68 percent expect the euro to depreciate more than the dollar or yen, and 33 percent would underweight the Eurozone and 24 percent would underweight global emerging markets.

Merrill strategists say on a net basis more managers want to overweight the U.S. than at any time in the last six years. A net 58 percent thought the dollar was undervalued while 71 percent believe the euro is overvalued. They also see the U.S. as having a more favorable corporate profit outlook than Europe, and the quality of earnings is seen to be improving while Europe deteriorates.

We've been seeing, hearing and watching signs of this for days now. Perhaps the most pronounced showing was the big jump last Friday in the dollar, its biggest one day move in six years, and a parallel triple digit gain in the Dow.

But beware. Traders keep reminding us though that this move of capital is not an endorsement of the U.S., but an acknowledgement instead that the rest of the world is now joining the U.S. in a slowdown and the U.S. has the chance to emerge earlier.

Along with this move in the dollar has been a major meltdown in commodities of all types - particularly oil. The managers also changed their views on inflation and interest rates, and the survey shows the weakest inflation expectations reading in more than six years.

Surprisingly, despite the big drop in oil prices, the fund managers mostly stick to a trade that prefers energy shares over banks. The survey shows that they had been favoring the long energy and underweight financials for months now.

But in August, they reduced their overweight in energy and were more overweight pharmaceuticals, though emphasis on that group was reduced as well. They also say the financials are the most undervalued, but they view materials, utilities, staples and discretionary stocks as more overvalued than energy.

The dynamics of the credit crunch may also be starting to change, Merrill says. They say the changes in investment preference in sector rotation and the currency markets is a sign of this and suggests the credit crunch is morphing from a financial crises into an economic event as fear grows about the global economy. One in four of the managers now believe the global economy is in recession and half the respondents expect the world to be in recession in the coming 12 months.

Questions? Comments? marketinsider@cnbc.com

Stocks should continue to take most of their cues from oil and the dollar Wednesday, but July retail sales data could also be key.

Investors will be watching July's retail sales, released at 8:30 a.m. as a measure of the consumer's health. Economists are forecasting a weak number, and last week's monthly chain store sales reports also flashed warnings of a slowdown in spending. The consensus is for a 0.1 percent decline.

Weekly oil inventory data is reported at 10:35 a.m. Import prices are due at 8:30 a.m. and business inventories are released at 10 a.m.

Market Mayhem

The financials were at the epicenter of Tuesday's market sell off, just as some investors are hoping the group was finally finding a bottom. To make matters worse, it was not all of the usual suspects causing the sell off.

Two of the street's favorites in the sector were at the heart of the selling. First, J.P. Morgan had announced late Monday that it had losses of $1.5 billion so far this quarter on mortgage related assets. Then, Goldman Sachs saw estimates slashed by three separate analysts in less than 24 hours.

As expected, UBS reported a loss of $300 million. It also said it would split its investment banking unit from its wealth management business. Wachovia too added another $500 milliion in reserves for a regulatory settlement.

"I think it's more people looking for a reason to sell and short this space again," said Patrick Boyle of LaBranche Financial Services. The S&P financial sector was down 5.2 percent.

"I do think there's a floor underneath this sell off," he said. "..I think we needed a little dip in these financials because there's still a little lag in news in the space, waiting to come out. People are waiting for the other shoe to drop."

As has happened in recent sessions, the move in financials was the mirror opposite for some commodities-related names. The S&P materials sector edged up 0.49 percent. Buyers moved into stocks like Potash, Monsanto and Freeport-McMoran.

Dollar Takes a Breather

The dollar moved lower, after five days of gains to finish the New York session with a 0.12 percent loss against the euro. It stood at $1.4922 per euro in afternoon trading. The dollar lost 0.74 per cent against the yen.

The Dow lost 139.99 points, or 1.2 percent to 11,642.47, and the S&P 500 fell 15.73 points, or 1.2 percent, to 1289.59. Treasurys meanwhile gained, with the yield on the 10-year slipping to 3.920 percent, the lowest level since July 15.

"I would expect a rocky opening tomorrow (Wednesday)," said Kevin Ferry of Cronus Futures Management. "This is a growth slowdown story, so the first few unwinds you saw were an "up with America" trade. The dollar was better, oil was trading down and the stock market was doing better ... On a day like today, it hits home," he said after the close Tuesday. "In the interest rate forward market, those rates are coming down hard."

Oil Gets Drilled

Oil fell $1.44 per barrel, or 1.3 percent to settle at $113.01. Heating oil fell 4.14 cents to $3.0781, a 1.3 percent decline and its lowest level since April 4. Gasoline futures fell 2.34 cents, or 0.8 percent to $2.8432 per gallon.

Tom Kloza, chief analyst at Oil Price Information Service, says he thinks the crude will stay under pressure for the time being. "I think you'll continue to see those huge swings. I wouldn't be surprised if we don't swing down below 100 in the purge cycle. I also get the sense we're going to get a few hurricane scares," he said.

Kloza, in a phone interview, said he thinks oil will range from $80 per barrel to $130 in the next nine months, and of course, could overshoot in either direction. He noted the similarity between the market's current behavior to a period in August, 2006 when the market ignored news that normally would be "bullish." In this case, it is ignoring the news in Georgia, even after BP said it was shutting down a pipeline there.

"If that happened a few months ago, it would have justified a move of anywhere from $5 to $20 for crude. There has been a major sentiment shift for oil," he said. But "I'm not in the group that says the commodities boom is over."

In a note earlier today, he explained that investor psyche can be more damaged when a market fails to rally on "bullish news" than it might be by the arrival of bearish news. "...Things get overheated and this indicated, my goodness, we overheated." he said.

Oil and gasoline inventory data is expected at 10:35 a.m. Platts expects crude inventories to show a build of 500,000 barrels with the Energy Information Administration and American Petroleum Institute release weekly data. Platts survey also expects a decline of 2.2 million barrels in gasoline stocks due to poor refining margins and lower run rates, and a build in distillate stocks of 1.9 million barrels.

Stocks To Watch

On the earnings front, Macy's and Deere report earnings before the bell.

Applied Materials shares rose in after hours trading. The chip equipment maker reported sharply lower profits in line with expectations, but saw its stock move after the ceo said he expects conditions to improve. CVS Caremark late Tuesday said it would buy rival Longs Drugs for $2.9 billion.

Stocks are likely to follow the dollar, commodities trade again Tuesday, with little economic news to drive direction early.

Brown Brothers Harriman chief currency strategist Marc Chandler warns that it could be a down day, a "turnaround Tuesday" for the dollar but that any selloff in the currency would create a buying opportunity, and its uptrend remains in tact.

Stocks, in recent sessions, have moved higher as the dollar strengthened against the euro and as commodities, particularly oil, sell off. A reversal in that trend could help send equities lower. The dollar saw its biggest one day move up against the euro in six years on Friday, a triple digit day for the Dow.

"The (dollar) move has been a lot faster than people had thought. It was the fastest, sharpest move in years. We've gone from a range trading market to a trend market," he said.

"The real money has been caught kind of napping. They didn't adjust their hedges or adjust their exposure," said Chandler. He points out the European stock markets and bond markets have not followed. "Because the European assets are holding up, that's sort of blunting the impact," he said.

He said the currency market will be attuned to the trade deficit Tuesday, retail sales Wednesday and then focus on the European and Japanese GDP, expected by the market to be weak. "I wonder if it's buy the rumor and sell the fact," he said.

Brian Dolan, chief currency strategist at Forex.com, said he too thinks the dollar has made a turn and its uptrend is here to stay. "The further confirmation I get is what I've been seeing so far from other currency analysts. They're saying it is too far, too fast. It can't be sustained. That's a contrarian indicator," he said.

In the very near term, he said the euro could trade down to $1.45 and then ultimately to $1.35 to $1.38 in early 2009. "Every attempt for the euro to bounce back and retrack to the upside has been sharply rejected," he said.

The dollar rose 0.77 percent against the euro Monday, to a value of $1.4903 dollars per euro. It slid 0.04 percent against the yen.

Econorma

Tuesday's economic data includes international trade data at 8:30 a.m., and the NFIB small business survey, issued at 7:30 a.m.

Important to watch too will be CNBC's Steve Liesman's interview with Minneapolis Fed President Gary Stern at 10:30 a.m.

In earnings news, UBS is expected to report a loss early in the morning, and Thomson Reuters and retailer TJX also report earnings before the opening bell.

The Dow closed up 48 to 11,782, well off its highs of the session, and the S&P 500 was up 9 at 1305, the beginning of a level where traders see resistance. The Nasdaq rose 25 or 1.1 percent to 2439.

The big trade in the market has been anti-oil. The stocks that have the most to gain from falling energy prices have been the most attractive, and energy and materials have been sold off. Consumer discretionary stocks were up 2.5 percent Monday, and materials stocks and energy were the worst performers, both off 0.4 percent.

As far as Tuesday goes, "I feel like we're going lower," said Pat Kernen, who trades S&P options with Cardinal Capital. "We actually saw a lot of options buying again toward the end of the day which makes me think we're still looking for a push lower." Kernen said the week will be volatile because of the options expiration at the end of the week.

Greatest Decline Ever

The Reuters Jefferies CRB, an index that includes 22 commodities, declined again Monday.
In the 27 trading sessions since its peak July 2, the CRB has fallen 18.7 percent.

Jeff Rubin of Birinyi Associates said in a note Monday that this is the greatest commodities decline in the period between 1970 and present, and the closest similar move in this index was in April 1974 when commodities lost 14.6 in a similar time frame. In 1974, commodities continued lower in the short term before rebounding in July of that year to test their previous highs.

Gold on Monday continued to melt down, losing 4.2 percent to $821.50 per troy ounce, off more than 30 percent from its March high. Silver was off 4.6 percent, and copper was off 1.2 percent.

But agricultural commodities were another story. Corn, wheat and soy bean futures were all higher ahead of the USDA crop report, due Tuesday morning. The August crop report is always a big event, but this year it will include a special survey of farmers who were hit by floods earlier in the summer.

Corn trader Carol Hurley saw a buying opportunity before the release of the report. "Corn dropped form $8 to about $5 (per bushel) on the December contract. We've had good weather, and they've been pricing in better than what the market was looking for a month ago. I want to buy them down here," said Hurley, who trades with M.F. Global's Lindwaldock unit.

Oil Drill

The energy market has largely been ignoring the Russian assault on Georgia, which could certainly have been a factor capable of sending oil higher just weeks ago. On Monday, oil slipped $0.75 per barrel, or 0.7 percent to finish at $114.45.

President Bush Monday said the Russian drive into Georgia is unacceptable, and it has damaged Russia's standing in the world.

A big concern in the energy markets is the oil pipeline that runs through Georgia, and connects the Azerbaijani oil center of Baku to Cheyhan on the Mediterranean in Turkey.

"The Russians were always denouncing the pipeline ... It was built as a way to provide an avenue to the global markets for landlocked Caspian oil, and thus contribute to greater energy security by helping consolidate the independence of Azerbaijan and Georgia," said Cambridge Energy Research Chairman Dan Yergin.

"This is a key global energy asset ... The Russian aim seems to be regime change in Georgia. There's a deep antipathy between (Russian Prime Minister Vladimir) Putin and (Georgia President Mikheil Saakashvili). I think clearly their main objective is to remove Saakashvili and bring Georgia back into Russia's sphere of influence," said Yergin.

Yergin said the pipeline has a capacity of a million barrels a day, and it typically has 800,000 barrels flowing through it daily. However, it was attacked by a Kurdish extremist group several weeks ago in Turkey and was impaired.

"The U.S. is currently promoting a plan for a gas pipeline that would parallel that and bring gas off the Caspian Sea and into Europe as a way to diversify away from Gazprom," he said.

Questions? Comments? marketinsider@cnbc.com

Stocks could sprint higher into the coming week, as a strengthening dollar and declining commodities prices encourage buyers hoping for a reprieve from inflation.

The focus again will be on oil, and the strengthening U.S. dollar and parallel decline in the price of all commodities. The stock market soared Friday as the dollar scored its biggest one day gain against the euro in more than six years, and oil fell to a level not seen since May 1.

But traders warn the market could remain choppy in thin summer trading, and stocks still face the pitfalls of the lingering credit crunch and a sluggish economy. Oil is also the wild card. If geopolitical events heat up, including the movement of Russian troops into Georgia, crude's trend could easily reverse.

There's some key economic data in the week ahead, including retail sales and consumer sentiment. Consumer price inflation data is expected on Thursday, and the earnings of some big retailers, including Wal-mart, will be another window into the pressure on consumers.

Whither Stocks?

Stuart Freeman, chief strategist at Wachovia, says it is a good time for investors to selectively add to stock positions, but he doesn't expect the market to make much head way for now. "We're still in the vacation portion of the year, and even some of the large moves we've seen in the last month have not been on dramatic volume, so we're just bouncing around here a day at a time and a piece of news at a time. We'll probably go into the fall trading in a range here and probably well into the third quarter, kind of bouncing around and not moving upward," he said in a phone interview.

"We think the market (S&P 500) could trade in the range from this (mid 1200) area to the 1400 plus area at the end of the year, as we get through the third quarter and probably get more favorable data," he said. (When Freeman was speaking the S&P 500 was trading at about 1260.)

One of the big shackles on stocks is the state of the economy and he sees more earnings trouble ahead in the third quarter, but by fourth quarter earnings comparisons could start to improve. He expects retail sales data this Wednesday and consumer sentiment on Friday to reflect tepid spending and a concerned consumer.

"I think investors should be accumulating here. If they don't want to do it all at once, do a piece here, another piece in three months," said Freeman.

He said the negativity and breadth of the market decline has been strong enough for history to suggest there could be a 20 percent move in the S&P in the next 18 months. This is the kind of environment where long-term investors should slowly average into some of the cyclicals that have been hit hard. "It's always the hardest decision to make when thing are down," he said.

Freeman said the market is still "picking along" and may retest its lows again before finding a bottom. He said the decline in oil is very helpful and should bolster consumer sentiment. "I think oil is going to be very volatile. I do think there's potential for it to move back toward the $100 area. There's a reason it's broken. You're seeing it in slowing international demand and cautious use of gasoline here, and a still a soft economy here. There's a demand shift that shows a real impact," he said.

As far as stock groups, "we're kind of in a neutral place with respect to sectors. We had been very defensive for two years. About a month ago, we became more neutral," he said.

Freeman said he currently recommends overweighting industrials. "We think the combination of the pickup here and the slow growth aboard is going to continue to bring some growth here, as it has over the last year. He is currently underweighting health care, utilities, and is even weight energy, tech and financials.

"I feel better about the market than I do about the economy right now. It's a confidence thing. The market tends to a look a little farther out," he said.

In the past week, the stock market bolted higher, with the Dow up 408 points or 3.6 percent to 11,734. The S&P 500 rose 36 points, or 2.9 percent to 1296. Traders see the next area of resistance for the S&P now at 1305-1311. The 10-year Treasury added a full point to 100-13/32 in the past week, raising its yield to 3.950 percent.

The financial sector gained 1 percent for the week, even with negative news from Fannie Mae and Freddie Mac. The best performers were consumer discretionary, up 7.7 percent; tech, up 6 percent, and health care, up 4 percent. Worst performers were energy, down 4 percent and materials, off 3 percent.

Oil Gets Drilled

Oil fell 7.9 percent in the past week , tumbling to settle at $115.20 per barrel. Crude is now 21 percent below its record close, set on July 3.

M.F. Global's Michael Fitzpatrick said he thinks oil is now oversold and should be trading about $5 to $7 higher. "If the sell off is based on the premise that demand is contracting not only here in the U.S. but in Europe and the developing world as well, then I think there's a level of economic activity that would mean it should be higher t than this," he said. Fitzpatrick said if Russia's movement of troops into Georgia begins to threaten oil or gas facilities then there could be a market reaction.

But if not, and oil continues its negative trend, the next stop could be a level of $110.30, he said.

Bottom Dollar?

The big runup in the dollar against the euro has currency traders crowing about capitulation of the euro currency. The dollar on Friday jumped 2 percent and for the week it rose 3.5 percent, its biggest weekly gain against the euro since January, 2005. It finished Friday at $1.5018.

The dollar's move came after the European Central Bank Thursday held rates steady, and ECB President Jean Claude Trichet indicated concern about the European economy. "The dollar is gaining in default, but it's not in any way an economic referendum on the U.S. economy. It's a lack of confidence in the European economy. I think at $1.48 (per euro) we're definitely going to see it stabilize," said Boris Schlossberg, director of currency research at GFT Forex.

Schlossberg said once the dollar went through $1.55 "all the long term funds, all the people long euros for a long term trend began to liquidate and you had a cascade of stop losses."

"It's an example of what a speculative market can do," said Boris Schlossberg, director of currency research at GFT Forex. "It's telling me most of this liquidation in the euro should find a bit of stability here. There's nothing on the economic calendar on the U.S. side or European side that is really going to prop the euro up," said Schlossberg. He did note that Eurozone GDP will be reported in the coming week, and it could be negative for the first time since 2003.

Econorama

The coming week's economic calendar offers a good look at how both the consumer and industry are faring, as well as a read on consumer inflation.

On Tuesday, the NFIB small business survey is released as is international trade data. Wednesday's releases include retail sales, import prices and business inventories. Weekly jobless claims are reported Thursday as is CPI. On Friday, the Fed's Empire State survey is released. Industrial production and consumer sentiment are also reported that day. The Treasury also issues its international capital flow data Friday.

Earnings Central

Retailers reporting earnings in the coming week include TJX on Tuesday; Macy's Wednesday, and Kohl's, Nordstrom and Wal-Mart Thursday.

Abercrombie and Fitch and J.C. Penney report Friday.

Other companies to watch include Petrobras and Liberty Media on Monday, Applied Materials and Thomson Reuters Tuesday; Deere on Wednesday and Agilent on Thursday.

Questions? Comments? marketinsider@cnbc.com

Stocks could trip up on more bad news from the financial sector Friday, but the bigger issue for market direction is whether the commodities selloff continues.

Fannie Mae earnings are expected before the opening. Investors sold Fannie's stock Thursday on fears it will repeat the bad results turned in by fellow mortgage giant Freddie Mac this past Wednesday.

"It (Fannie) might even get a bounce on worse than expected news," said Art Hogan, chief strategist at Jefferies and Co.

"First of all, we were so off on our Freddie expectations, you have to assume the same people are estimating Fannie earnings. My guess is that it would be impossible for the collective wisdom that was wrong about Freddie to get up to speed in time for Fannie to report," he said.

Other earnings Friday include an after-the-bell report from Warren Buffett's Berkshire Hathaway .

Financials Under Fire

Big losses at AIG and a government settlement with Citigroup cast a major cloud over the financials and the stock market Thursday. Disappointing chain store sales and jobless claims also weighed on the market. The Dow was down 224.64, or 1.9 percent to 11,431.43, and the S&P 500 was down 23.12, or 1.8 percent to 1266.07. The Nasdaq was down 1 percent. The financial sector was down 5 percent. The second worst performer was consumer discretionary, own 2 percent.

In a deal with New York state and federal regulators, Citigroup agreed to buy out the more than $7 billion in auction rate securities it sold to individual investors, charities and small businesses. Citigroup is expected to use its best efforts to liquidate another $12 billion of these securities it sold to retirement plans and institutional money managers.

Merrill Lynch, after the bell, said it was offering to buy out its retail customers who invested in auction rates securities . Wall Street executives say the major firms put some of their best clients in these securities, and it is a point of contention between management and their brokers, who have been shouldering customer complaints. These securities were heavily marketed to high net worth individuals.

Until the credit crunch froze this corner of the credit markets last winter, auction rate securities were a popular funding vehicle for student loan companies, municipalities and other financial instructions. They are long-term securities, but they have short-term characteristics. Interest rates reset weekly or monthly. For many investors, the perception was these securities were a safe-haven, equal to cash but paying a better rate.

It is expected the rest of the street will follow Citi's lead and pay back investors. After the bell, Reuters reported that Texas is investigating nearly a dozen firms and is acting as lead investigator on one or two.

Oil Drill

Oil prices perked up Thursday for the first time in four sessions , adding to the negative gloom around equities. Oil finished at $120.02, up $1.44 per barrel or 1.2 percent. The dollar, meanwhile, was firmer against the euro after turning in a weak performance overnight.

"I think crude tumbled when heating oil followed natural gas down on the day. The fact that gasoline hung in there helped on the crude side. it's kind of strange because the dollar was strong all day against the euro. I just think we're kind of stuck here," said Addison Armstrong of Tradition Energy.

"I get the feeling there's buyers lurking who would like to push (oil) up and see if we can get a settlement above $121.25. if we get a settlement above there, they would start to build on it. I think it's too early to tell what's really going," he said.

Armstrong, a CNBC contributor, said the fact that it is Friday and its August, may result in more sluggish trading. "We could find ourselves between $120 and $130 for the month of August without any new news coming into the markets," he said.

Those who follow energy will no doubt be watching Texas oil man Boone Pickens, who is a guest on Squawk Box Friday.

Hot Commodities?

Gold fell $4.90 per troy ounce, or 0.6 percent to $870.70, but it had been higher overnight. Wheat, corn and other grains though were up broadly for the first time in a week.

"If we have another up day (for commodities and oil) and more weakness in the dollar, and it seems liked we reversed that trend, we may shave off another 200 points," on the Dow, said Hogan. He said this trend is one of the most important for the stock market right now, and stock traders are watching for falling commodities and a weak dollar to help lift stock prices.

Stocks had been benefiting from weaker oil, and Hogan points out oil is in the middle of its trading range for the year. At the same time, some investors were theorizing that it is time to put money into financial stocks.

"There's a lot of market participants out there that thought they were bottom picking financials, and they were selling energy to do it. It was a dangerous bet today, and that bet's going to be fraught with danger for a while," he said.

Econorama

Friday's data includes productivity at 8:30 a.m. and wholesale trade at 10 a.m.

Questions? Comments? marketinsider@cnbc.com

How deep is the consumer's funk?

Thursday's markets will be watching for clues to that trend when chain stores report their July sales. Analysts expect a tepid 2.3 percent increase for July, even with the boost from stimulus rebate checks. But it's the comments about the important back-to-school shopping season that will tell the story.

Back-to-school is the second most important period for retailers, after the year-end holiday shopping period. It is also viewed as a precursor to holiday sales and from all accounts, neither are looking too good this year.

The International Council of Shopping Centers predicts a 1 percent increase in back-to-school sales, the slowest growth since 2001. Some early data from Master Card shows sluggishness in the last three weeks even in the usually busy electronics sector.

The National Retail Federation expects a 5 percent increase in K-12 spending, but a 7 percent decline in spending for college students.

Paralleling weak sales are concerns about consumer credit quality and availability. The latest consumer credit data for June is reported at 3 p.m. Thursday. Economists are watching that trend carefully as banks and other lenders pull back.

Just this week, Morgan Stanley cut back on home equity lines and the withdraw of auto industry leasing programs has been well documented.

There should still be some kick from stimulus rebate checks in the July retail sales, but economists think that effect will soon start to wane. Deutsche Bank chief U.S. economist Joseph LaVorgna said in a note Wednesday that he expects to see a "sharp retrenchment " in household spending in the near term as household incomes fail to keep pace with inflation; the stimulus boost dries up and unemployment continues to increase.

Dollar vs. Euro

Before the bell, the European Central Bank and Bank of England have interest rate decisions. Both are expected to leave rates unchanged, but comments from ECB president Jean Claude Trichet will be key for the U.S. dollar.

Traders are watching to see if he will talk tough on inflation or concede that slowing growth in the eurozone might reduce that threat. They are betting on tough talk.

The dollar rose 0.32 percent against the euro and a big 1.4 percent against the yen Wednesday. At 0.6488 euros, the dollar was at its highest 4 p.m. close since June 13.

Econorama

Other data due Thursday includes weekly jobless claims at 8:30 a.m. and pending home sales for June at 10 a.m.

In Wednesday's session, the Dow rose 40 or 0.3 percent to 11,656, and the S&P 500 finished up 4 points to 1289. The Nasdaq though was up 28 points, or 1.2 percent, to 2378.

Cowen and Co.'s Todd Leone said the stock market was a bit "topsy-turvy" Wednesday, but all in all turned in a decent performance after Tuesday's triple digit bounce. For one, oil cooperated, falling slightly to close at $118.58 per barrel after dipping close to $117 during the trading day.

Energy stocks were the best performers, up 1.9 percent even as oil declined, and telecoms were the worst performers, down 1.4 percent. Financials fell 1 percent and consumer discretionary stocks were down nearly a half percent. Materials rebounded 1.4 percent and tech was up 1.3 percent.

Commodities remained under pressure. Gold fell $3 to $875.60. The yield on the 10-year rose to 4.050 percent, its highest yield since July 25, and the two-year increased to 2.571 percent.

"I think it's good that stocks held up. The market was up big yesterday, and the Dow was up 40," he said. Traders will be monitoring retail reports Thursday and a few earnings headlines.

Earnings Central

Hanging over Thursday's market is AIG's after hours report of a large and unexpected loss. AIG stock tumbled after it said it lost $0.51 per share, on an adjusted basis, on revenues of $19.9 billion. Analysts had expected a profit of $0.63 per share on revenues of $31.15 billion. AIG's total second quarter loss, including items was $5.36 billion. CEO Robert Willumstead said the company would unveil a plan to get through this troubled period and rebuild shareholder value in September.

Toyota is among the companies reporting Thursday, as is Barr Pharmaceuticals , DirecTV , Sempra Energy , Allianz and Williams Cos . Crocs reports after the bell.

Market Call - Bad News, Good News

UBS strategist David Bianco is throwing up the red flag on the global economy. He's also cutting his forecast for the S&P 500 for this year, mainly because he sees continued problems and a longer recovery time for the financial sector.

Bianco took his target to 1550 for year end on the S&P 500 from 1650. His 12-month target remains 1650. Bianco says in a note Wednesday that he's still bullish but the financials are a drag on the earnings picture and his price target.

He did say he believes financials could appreciate 30 percent into early 2009 from current levels. He said he hadn't expected the credit costs to be so high and the group's problems are not yet over. He raised his estimate of financial asset writedowns to $110 billion for 2008 from $70 billion.

In the note, Bianco said UBS economists believe there will be a shallow but longer U.S. recession and a sizeable European slowdown. UBS believes the U.S. has been in a recession and that will continue through the end of 2008 but not into 2009. They reduced GDP growth to negative 0.5 percent for Q4, from 1 percent growth, and they trimmed first quarter to 1.1 percent growth from 1.8 percent.

The economists also recently cut 2009 European GDP estimates and trimmed expectations for key emerging market economies. UBS now sees global growth at 3.4 percent in 2008 and 2.9 percent in 2009.

Bianco says he still overweight energy, industrials and technology, and he likes big-cap internationally exposed stocks. He still likes emerging market exposure, through S&P industry leaders. Bianco said the late 1990/1991 period is analogous to this market period, and that most recessionary troughs are followed by 20 percent plus gains in six months for the S&P 500.

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