Stocks go into Friday facing important manufacturing and housing data and, of course, more turbulence.

Oil again is a major a factor traders are watching. Crude chugged slightly higher Thursday, breaking a losing streak. Oil was up $1.05 to $125.49 per barrel.

The Senate also considers the housing bill, adopted by the House Wednesday. The legislation would insure up to $300 billion in refinanced mortgages and provides for a new regulator and government back stop for mortgage giants Fannie Mae and Freddie Mac .

Econorama

Economic data Friday includes durable goods orders, at 8:30 a.m.. New home sales and consumer sentiment are reported at 10 a.m. Realtytrac is also expected to release new foreclosure data.

"We expect the pace of the manufacturing economy to be slow and we expect the durable goods orders to be slow. There's a built-in preconceived notion that all the economic data we get (Friday) is going to be negative," said Jefferies and Co chief market strategist Art Hogan.

The bears returned Thursday, driving stocks sharply lower after a surprise increase in weekly jobless claims and data that showed existing home sales at a 10-year low in June. The Dow slid 283 points or 2.4 percent to 11,349, its biggest drop since June 25 and lowest close since July 16. The Nasdaq fell 45.77 points or 2 percent to 2280.11, and the S&P 500, down 29.65 points, or 2.3 percent to 1252.54.

Even with the stock market's crabbiness, the dollar again moved higher. It was up 0.5 percent against the euro, its third straight day of gains. Of course, the sagging European economy might be a factor. Check out the drop in German business sentiment Thursday, at its lowest level since September, 2005.

Hogan said Friday could also be odd because it is a summer Friday, usually a low volume day. "The problem is if today (selloff) happened a week ago, we'd be saying it's like just another day. But then we got used to the market going up, and today feels like it's the end of the world as we know it. But that's not the case. It's just another step in the process."

He said a big question is whether Thursday's selloff is a one day event or the beginning of a new selling wave. "I wouldn't give too much credibility to whatever we do tomorrow (Friday), but I think we got more selling than we needed to out of the way today. I don't think we're going to have a big upside leg but I think we overdid it in the short run," he said in a phone interview Thursday.

Going Naked

It's ironic that one of the stocks at the heart of Thursday's selling spree in the financials sector was left off the SEC's list of financial institutions it is protecting with new rules on naked short selling. That stock, Washington Mutual took a huge dive amid concerns about its funding sources. The company, in a statement, said it does not rely on commercial paper to fund its business, disputing an analyst report that raised the issue. Earlier in the week, WaMu said it was adequately capitalized to get through the housing downturn.

Housing blues were the theme du jour Thursday. Besides a more than 6 percent sell off in the recently rebounding financials, home builders were also under fire. The Philly Housing Index, off 8.6 percent, and S&P Homebuilding Index, off 10 percent, both had their worst days ever.

The S&P financial sector is still up just about 0.4 percent for the week, going into Friday.
Energy stocks have been the week's big losers so far. Birinyi Associates issued a note saying the energy sector is now the most oversold it has been since 2002. It pointed out that as of the close Wednesday, the sector is the most oversold its been since the market bottom exactly six years ago on 7/23/02. Birinyi also pointed out crude is down 14.4 percent from its July 3 high, and since 1985, there have been 45 corrections in oil bull markets. The average decline has been 13.73 percent over 25 days.

Birinyi also points out that on May 21, it sent out a bulletin noting that most energy stocks in the S&P 500 were overbought. Since that date, the sector is down 18.8 percent, and 33 of the 39 stocks are now oversold. None are overbought. For the week, energy stocks are down 3.74 percent. They are down 15.4 percent for the month.

Earnings Central

Oil's move to a six-week low has been cheering the stock market, but the question is for how long?

Traders say they are watching oil prices (and corporate earnings) again as the big movers in Thursday's markets. Also expected are two key pieces of economic data -- existing home sales at 10 a.m. and weekly jobless claims at 8:30 a.m.

In Washington, New York Fed President Timothy Geithner and SEC Chairman Christopher Cox both appear before the House Finance Committee's hearing on the financial regulatory system and the financial services industry. This is the second hearing on the topic, which is being held in the aftermath of the rescue of Bear Stearns.

The Senate is expected to take on the House-approved housing bill, and that action will be key to the markets as it was Wednesday when the House considered it. The bill is expected to be approved some time this week. President Bush has promised not to veto the legislation which includes a wide ranging government assistance package for the mortgage markets, as well as a plan to help back stop mortgage giants Fannie Mae and Freddie Mac .

Microsoft will be a focus in early trading after the resignation of Kevin Johnson, long considered a contender for the top job at the company. Microsoft also holds a previously scheduled analyst day Thursday.

Oil Slick

Oil prices continued its slide Wednesday, giving stocks room to gain. Financial shares were up another 1.9 percent, but the best performers were telecom services, up 3.35 percent. Consumer discretionary stocks were up 2 percent, and the biggest losers were energy shares, down 3.83 percent.

The Dow rose 29.88 to 11,632.38 and the S&P 500 gained 5.19 points to 1282.19. The dollar rose another 0.55 against he euro, giving it its best 4 p.m. value since July 8. For the year, the dollar is now down 6.96 percent against the euro. It stood at $1.5690 per euro late Wednesday.

Treasuries fell, lifting the yield on the 10-year to 4.148 percent and the two-year to 2.783 percent

Patrick Kernen, who trades options on the S&P 500, said he is still leery about the stock market's ability to gain just now. "If you looked at the Vix and you look at the S&P 500 today, we were up right around a half a percent in the index and the Vix was up 2 percent ... As we go higher, usually the Vix goes lower because people become more complacent," he said. "..The fact that the index was higher and the Vix was going higher makes me kind of nervous." The Vix ended at 21.31, giving back some gains in the last 10 minutes of trading, he said.

Kernen, who is a partner at Cardinal Capital, said traders are watching oil carefully. "The other thing we see is oil down $24 in two weeks. If oil hadn't done that, I think we'd still be down somewhere closer to 1225 on the S&P," he said.

Head Fake?

Oil's decline could be a relief to the economy, particularly if gasoline prices begin to move lower, said Mark Zandi, chief economist at Moody's Economy.com. I asked him if he thinks the current decline is a head fake or a real move down.

"I thought going from $100 to $145 (per barrel) was the head fake. I just couldn't explain so I think it's closer to where fundamentals are, thank goodness," he said. "It's a big plus if prices stay where they are or fall further. $145 and rising was just a vice grip on the economy."

"If you look at refinery utilization rates, they started falling because gasoline inventories are high, so I suspect gasoline prices are going to come down too," he said. "If we get south of $4, then $3.75 (per gallon), and then closer to $3.50, that'll make a big difference."

Econorama

As far as Thursday's data, Zandi says the existing home sales could soon start to show signs of bottoming, but he still expects them to register a decline.

He said a bottoming in housing is coming because "in part because the decline in housing values is restoring affordability in some markets and more importantly distress sales are rising sharply. A fourth of all sales in the second quarter were distress sales," he said.

For jobless claims, "it's a very volatile time of the year. If claims remain within 375,000 that would be consistent with continued jobs losses," he said.

Shades of Beige

Zandi said the Fed's beige book report on the economy, released Wednesday, was consistent with expectations for a weak economy. "They did focus on housing and they also threw into the mix commercial real estate, which is going to go from being a plus to a minus for the economy," he said.

Meanwhile, Japan's Cabinet Office early Thursday lowered its growth forecast for the current fiscal year for that country to 1.3 percent from a previous 2.0 percent, blaming rising crude oil and other commodities prices, as well as the higher yen and slackening U.S. demand for Japanese goods.

Stocks to Watch

It was Kevin Johnson who headed Microsoft's online business and led the company's failed bid for Yahoo. His departure will result in a reorganization of his unit which consists of both on line services and Windows software. CEO Steven Ballmer will head the Windows group with three other executives reporting to him. Johnson is leaving to run Juniper Networks. It should be an interesting analysts meeting.

Amazon.com shares moved higher in the after hours trading after reporting earnings that topped expectations. The company said it earned $158 million, compared to $78 million the year earlier. Amazon said it believes high fuel costs are a benefit to the company, as customers choose to shop online instead of driving to stores. The company, which has a free shipping program, said shipping costs rose 38 percent in the quarter.

Earnings Central

Oil's trend lower has whipped up buying in stocks and could do the same Wednesday, if a string of major blue chips' earnings don't disappoint before the opening bell.

AT&T,McDonald's, Boeing, Pepsico, Pfizer and ConocoPhillips all report early in the day. Anheuser-Busch, Sallie Mae, General Dynamics and Glaxo SmithKline also report. After the bell, Amazon.com reports.

Stocks are casting a wary eye on oil and, lacking any dramatic events, earnings news could steer the market.

Big earnings next week include tech, pharmaceuticals, industrials and of course, banks. Bank of America and Wachovia are the next banks to watch when they report Monday and Tuesday, and Apple is the next big tech name on Monday.

Citigroup's better-than-expected earnings report turned the tide ahead of the open.

Citigroup's earnings was expected to be the story of the day, and the mood going into it was already dampened by a string of weak earnings reports after Thursday's closing bell. Futures were weaker overnight but staged a dramatic turnaround into positive territory, as investors looked at the Citigroup numbers. The dollar also gained.

Some of the biggest names - Google, Microsoft , Merrill Lynch - all delivered shockers, either with disappointing numbers, forecasts or both. Google reported net of $1.25 billion, or $4.63 per share, below the $4.74 per share expected. Google said consumers are cautious about online spending patterns.

IBM was the exception, and even with a positive outlook, its stock took a hit.

Citigroup announced a smaller than anticipated writedown of $7.2 billion. The bank reported a loss of $0.54 per share, narrower than the expected $0.66 per share loss.

Other big names ahead of the opening include Honeywell and Schlumberger. Honeywell earnings rose 18 percent. Its per share profit of $0.96 per share beat analysts forecasts of $0.94 per share, and it raised its forecast for the year by $0.05 to a range of $3.75 to $3.85 per share.

Also encouraging to investors is news Friday morning of a $7.46 billion off for Barr Pharmaceuticals from Teva Pharmaceuticals.

There is no economic data of note, but stocks could be volatile around options expirations.

(Note to readers: the Look Ahead has been updated to reflect market developments)

Market Mayhem

Stocks were on a tear Thursday, with financials leading the charge once more. The Dow rose 207 or 1.8 percent to 11,446, and the S&P 500 was up 14 points or 1.2 percent to 1260.

The S&P financial sector leapt 6.5 percent. For the week so far, the group is up 10.2 percent. Traders said the group was propelled by better-than-expected earnings reports from Wells Fargo and J.P. Morgan but the heavily shorted sector also rose as traders moved positions after the SEC announced changes to the short selling rules.

The relentless ramp up of oil and commodities prices could be over for now, and that ultimately would be a good thing for stocks, says Citigroup Chief U.S. Strategist Tobias Levkovich.

"Is this the beginning of the unwind? My sense is yes," he said in a phone interview.

"There've been false dawns before, but structurally it should be."

Levkovich has been expecting this turn in the markets to come at mid-year for some time. "It's when you start to see the real weakness in the industrial environment," he said. One sign, he said, is deterioration in Europe, evidenced this week with the poor reading on German business confidence. He made these comments to me yesterday before oil fell through $134. (It finished today under $130 per barrel on the NYMEX)

"We've been saying it would start to shift mid-year..The investor would start to see the problems in the industrial commodities energy trade," he said.

Levkovich said it would not be a positive if the reason for energy's decline is global economic weakness. He also said there will be impact from the unwind of the equities related energy and commodities trades which he describes as "overcrowded."

"Ultimately, it should be good. It may not be good day one. because people have to take down earnings numbers and they have to react to that news," he said.

Levkovich has been favoring financials and certain consumer discretionary shares. He also likes health care and telecom services. Last month, he told me that health care stocks were like something you stored in the back of your attic, ignored and I would say, dusty. But since then, they've outperformed the market, rising more than 4 percent in the last month.

In a note today, he said equities are caught in a vacuum where the market had been suggesting that there was no value in many of the "franchise financial or consumer names." (those financials are certainly on fire today - up another 6.4 percent) Helped by JP Morgan'searnings, the group is in the second day of a major rally. Some of the most beaten up names - Lehmanand Washington Mutual- are scoring double digit gains.

"Financials are needed for the broad market to catch a real bid. It seems difficult to imagine that equity markets will trade higher without participation of the financial names, given the close connection between capital markets and capital market-sensitive stocks," he wrote in a note released this morning.

Questions? Comments? marketinsider@cnbc.com

Earnings from J.P. Morgan and some other big companies could sway the market's early direction, but traders are closely watching oil to see if it will make or break the upswing in stocks.

J.P. Morgan's earnings are expected before the bell, and Merrill Lynch's results come after the close. The financials Wednesday scored huge gains on the back of Wells Fargo's solid earnings report and dividend increase, but it was the move in oil that got the most credit for propelling equities.

Oil slumped $4.14 or 3 percent per barrel to $134.60, giving it a two day decline of more than 7 percent. That move helped ignite a stock rally that took the Dow up 276 points or 2.5 percent to 11,239 and the S&P 500 jumped 30 or 2.5 percent to 1245.

Oil Slick

The big debate on the street is whether this decline is a real reversal or just another trading event, like last week's drop in oil.

"The fact that it nearly reached $150 was part of its undoing," said CNBC's Rick Santelli. "Other factors are pressuring it, including options expirations Thursday and futures expirations next week."

Santelli said a psychological factor was President Bush's elimination of an executive ban on offshore drilling earlier this week, even though it does not yet change the status quo and would take years for results.

Santelli says he does not necessarily see this move down as a turning point. "You can't undo five years in two days," he said of the momentum in energy markets.

Econorama

Housing starts are reported at 8:30 a.m., and weekly jobless claims are reported at 8:30 a.m. The Philadelphia Fed survey is reported at 10 a.m.

Earnings Central

Thursday is a major earnings day. Coca-Cola, Nokia, BlackRock and United Technologies report before the bell, along with dozens of other companies. In the after hours, we'll hear from big tech - Google, Microsoft and IBM.

Oil's move could be a key trend in Wednesday's markets, as traders watch more Fed testimony, a bunch of earnings reports and another helping of inflation data.

It wasn't just the financials that got fried in Tuesday's market. Energy shares felt the heat - falling 4.2 percent as crude oil took a dive on the NYMEX. Oil was down $6.44 per barrel at $138.74, a decline of 4.4 percent, its biggest decline since March 19. It was the biggest dollar decline in oil since 1991.Oil inventory data is due at 10:30 a.m. Wednesday and could add to volatile trading.

Fed Chairman Ben Bernanke appears Wednesday for a second day of his semiannual testimony before Congress. The hearing before the House Finance Committee starts at 10 a.m.

Key economic news Wednesday includes consumer inflation data (CPI), reported at 8:30 a.m. and minutes from the last FOMC meeting, released at 2 p.m.

Other data includes industrial production, due at 9:15 a.m. Treasury international capital flow data is released at 9 a.m. and the National Association of Home Builders survey is reported at 1 p.m.

An important earnings report to watch before the bell is Wells Fargo. It's one of the first of several major banks to report this week.

Another important report came after the bell Tuesday. Intel reported better than expected earnings after the bell, but it gave up most early post market gains. Intel reported profits of $1.6 billion on revenues of $9.47 billion and said demand remains strong for its microprocessors and chipset products.

Market Mayhem

The Dow lost 92.65 percent, or 0.8 percent Tuesday to 10,962, and the S&P 500 fell 13, or 1.1 percent to 1214.91. Encouraging to traders though is the pickup in volume. The NYSE saw its second largest volume day in history, with 7.28 billion shares trading. Average daily volume this year has been 4.33 billion. Traders have been saying big volume has to come with a big sell off in order for the market to bottom out.

As "Fast Money" pointed out in Tuesday's show, Wednesday is the nine-year anniversary of the stock market's first close above Dow 11,000 - July, 16, 1999. Ironically, the market closed below 11,000 Tuesday for the first time since July 21, 2006, a full circle.

Another interesting market fact came from Standard and Poor's. For the first time since 1992, the S&P health care group closed with a higher market value than the financials. Financials have now lost 51.8 percent since October, 2007 and have fallen from the largest sector to the fourth largest. Meanwhile, health care stocks have been acting healthier lately. Not surprising, they were the best performers Tuesday, up 1.3 percent.

The S&P financial sector was down 3 percent, unable to hold onto gains. Fannie Mae and Freddie Mac were again both down, as Congressional testimony from Bernanke and Treasury Secretary Hank Paulson did little to reassure equity holders of those companies. Debt of the two-government sponsored entities however has been performing well as bondholders have been reassured by the government's actions this week.

The dollar recovered some ground against the Euro Tuesday after hitting a new low in overnight trading. In late afternoon trading Tuesday, the dollar was at its lowest point against the yen since June on concerns about the financial sector.

Buyers in Treasurys, meanwhile, helped push the yield on the 10-year to 3.844 percent and the two-year to 2.39 percent.

Indy Mac Attack

Greg Peters, Morgan Stanley Credit Strategist, said it's been the Indy Mac Bank news this week that's trumped Freddie Mac and Fannie Mae for the markets. (Bank stocks certainly continued to register a high degree of fear and uncertainty Tuesday, with Wachovia, Bank of America and Wells Fargo all joining the parade lower.)

As the dollar trades near an all time low against the euro, the question is whether Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson can talk tough enough to pump up the sagging greenback.

Bernanke and Paulson speak before the Senate Banking Committee this morning in a hearing that could stretch into the afternoon. Bernanke's testimony is initially his long scheduled semi annual testimony on the economy. Paulson was to join him and the focus turns to the Treasury and Fed plans to backstop Fannie Mae and Freddie Mac and no doubt the health of the financial system.

Bernanke's prepared remarks were released ahead of his appearance. He said the Fed is concerned about economic growth and the risks of inflation have intensified. His comments knocked more wind out of the stock market and weighed on the dollar. Paulson speaks later and they both take questions.

"If they say the same thing they always say, it's going to be ugly for the dollar. If they stick with the strong dollar mantra, the dollar's going to take another swoon," said Brian Dolan, chief strategist at Forex.com.

The dollar initially strengthened on Sunday's news of the Treasury plan, but as markets around the world start to reflect skittishness among foreign investors, the dollar has slid. Overnight, the euro shot above $160.39, a new high.

"These guys are all in a position to console and stabilize the market. I expect a little bit of cheerleading," said Dolan. But he said what the markets really want to hear is that U.S. officials are willing to use more than just words to defend the currency, and that they are ready to take action. Paulson and Bernanke also need to tell markets that fears around the financial sector are over blown and that the dollar should not be trading lower.

"All they need to do is change a little bit of the language and the market will maybe see a change in the risk calculus," he said.

"Since the whole credit crisis began, this is the most heightened chance of intervention we've had," said Dolan. Bernanke and Paulson will attempt to get support for the plans to backstop Freddie and Fannie, which needs Congressional approval.

But their words are aimed just as much at the international arena. "They are talking very much to an international audience. They're also getting pressure from various foreign governments to prevent the dollar from falling further," Dolan said. He also said they will want to stop the "runaway train" of a falling dollar, which is contributing to rising oil and other commodities prices.

Boris Schlossberg, senior currency strategist at DailyFx.com, told us in a note yesterday that the fading dollar gave way to the euro as the safe haven trade in the currency markets once more. "Since the greenback can't seem to get out of its own way, battered by systemic risk and anemic growth, the only way to strengthen it appears to be through intervention," Schlossberg wrote. (note to readers: includes fix to Schlossberg's title)

But he also notes that intervention doesn't always work and it has to be a major effort by the G-3 rather than by one Central Bank. He said the Plaza accord worked in the 1980s because central banks coordinated to drive the dollar down. "I t think it is much easier to knock down a strong currency rather than prop up a weak one. It becomes a matter of psychology. Once the public doesn't like the product, you can't sell it at any price," Schlossberg writes.

"If EURUSD passes beyond 1.65, watch the intervention chatter really pick up. Having run out of policy choices this may be the only card left for U.S. authorities to play," he says. Questions? Comments? marketinsider@cnbc.com

Fed Chairman Ben Bernanke's testimony before a Senate committee takes on even greater importance for Tuesday's markets, now that the Fed and Treasury have promised to backstop mortgage giants Fannie Mae and Freddie Mac.

There's plenty of other news to watch, including producer price inflation data, retail sales and some key earnings from financial institutions and blue chip Johnson and Johnson. General Motors also has a before the bell announcement on its plans to reshape itself. Intel reports after the bell.

Fed Speak and More

Bernanke has been scheduled to give his semiannual testimony on the economy before the Senate Banking Committee Tuesday morning, but he will now be joined by Treasury Secretary Hank Paulson and SEC Chairman Christopher Cox after his initial testimony.

All three are expected to answer questions about the Fed and Treasury plans to make sure Freddie and Fannie are well capitalized. Bernanke gives the Fed's latest economic forecast at the beginning of the 10 a.m. hearing, before moving on to Freddie and Fannie.

"We may learn a little more about the motivation for the move -- how severe the situation is for Fannie and Freddie," said Mark Zandi, chief economist at Moody's Economy.com. "I'm really curious to see how Congress will react to this."

"I think the bond holders are okay with it. They are convinced they are going to be fine, but the stock holders are very nervous about what it all means and how diluted it will be," he said.

Bernanke is also scheduled to spend Wednesday morning giving his economic testimony before the House Financial Services Committee.

Econorama

There are several key events on the economic calendar. The Producer Price Index, an important inflation gauge, is reported at 8:30 a.m. and retail sales for June are at 8:30 a.m. The Empire State survey is reported at 8:30 a.m. and business inventories are at 10 a.m. San Francisco Fed President Janet Yellen speaks on stabilizing communities at 3:30 p.m.

Blood on the Street

What started Monday as a halfway decent morning for financial stocks turned quickly into a blood letting with the KBW banking index diving 8.5 percent, the worst one day decline in its 16 year history. Downgrades, earnings reductions and speculation surrounded the group, taking on a more dire feel after the federal takeover of Indy Mac Bank Friday.

"What's going on is people are worried about the regional banks. You've had a couple of brokers talk about whether they can sustain the dividends. One of the interesting things is the preferreds are selling off sharply," said Art Cashin, UBS director of floor operations.

The stocks of Fannie Mae and Freddie Mac both jumped in an early relief rally but moved lower, each finishing with a loss on the day. Freddie successfully floated $3 billion in securities, a relief to the credit markets.

"What is really stunning about this ... is the Treasury threw the full faith and credit of the U.S. government behind those two stocks, and the stock market yawned. That's a little wary," he said.

The major stock indices did not show the ravaging felt in the financials. The Dow was off 45 at 11,055, and the S&P was off 11 at 1228. But the S&P financials were down 5 percent.

Among the worst hit bank stocks was Washington Mutual , down nearly 35 percent on the day. But Washington Mutual said after the bell it had sufficient capital, reversing its stock decline. Earlier in the day, Lehman said WaMu will need to add to reserves in the second quarter and over the balance of the year from some $26 billion in losses on its balance sheet. National City, which defended its capital position during the trading day, was down 14 percent at the close after a much steeper decline earlier.

Goldman put Zion on its conviction sell list, slicing the target to $21 from $39. That stock lost 23 percent.

Worries that other banks could fail surrounded the sector. The FDIC's Sheila Bair appeared on "Closing Bell," and said her agency has 90 troubled banks on its watch list. IndyMac was put on that list in June, she said.

"I think there's going to be other institutions that are in trouble, and I don't think the Fed and Treasury are going to be there to help," said Zandi. He said he expects the FDIC to handle them unless there are too many big failures.

I asked Zandi about his expectations for a rebound in the weak housing market, which acts to reinforce the deterioration in mortgages. "I was more hopeful before Fannie and Freddie, and everybody was hoping for them to provide more credit, not less," he said. "There's just so much foreclosed property and there's just no credit."

Zandi said this negative feed back loop is self-reinforcing, and he expects there will not be a recovery in housing prices until late next year.

Stocks to Watch

General Motors says it will brief employees at 8:30 a.m. and then hold a 9 a.m. press conference on how it plans to "align the business to current market conditions."

Genentech reported earnings after the bell, and its stock rose after it raised its earnings forecast for 2008.