Market strategist Byron Wien says the stock market is in the process of bottoming, and it will perform more strongly by year end.

"I don't know what's going to happen over the next month," said Wien during an appearance on "Squawk Box." "You are in a period now where the market is overshooting on the downside. I do think we're in a bottoming area, at least in terms of a potential rally."

"I think the market will do better later on in the summer. We may go back to test, but I think by the end of the year, the market will be performing more strongly than it is now," he said.

Wien, Pequot Capital chief investment officer, said the markets are rife with negativism: "The investment environment is filled with despair. That's where we are right now, and that's usually where we are at the bottom."

Stocks are likely to remain hobbled by gushing oil prices in the week ahead, but it's also the start of the earnings season, and that will ultimately influence direction.

It's a relatively quiet week for data, but other news will fill the void. There are two appearances by Fed Chairman Ben Bernanke, and President Bush attends the G-8's summit in Hokkaido, Japan in the beginning of the week.

A surge in negative sentiment bit into stocks in the past week. That negativity though may be hitting a crescendo and provide a buying opportunity, says Bob Doll, BlackRock vice chairman and global chief investment officer for equities. Doll said he listens to investor sentiment when it hits extremes.

"When you get extremes in either direction, it pays to be contrarian," he said. "We have a lot of negativity." The last time I spoke to Doll was May 16. At the time, he told me he didn't want to sound bearish, but stocks were ready to take a pause . Pause they did. A bit of a breathtaking pause.

"You have to be brave to buy stocks in here. It's not all that dissimilar from January and mid-March," he said. "I wouldn't be a hero. I don't think we're going straight up." See more of my interview with Doll on CNBC.com .

Stocks finished the week lower. The Nasdaq led the decline, losing 3 percent for the week. The S&P 500 was off 1.2 percent, and the Dow fell just 0.5 percent. Gold rose $2.60 per troy ounce to $931.90. The dollar edged higher by about half a percent against the euro.

Earnings Central

Second quarter earnings season is expected by many analysts to be an important test for the markets. There has been a sense that this mid-year point is when companies would start to show the wear and tear of a slowing economy, the continued bite of the credit crunch, and pressure from rising commodities prices.

The second quarter earnings reporting season kicks off with Alcoa's earnings Tuesday after the bell. There are just a few reports in the coming week, but the other big one is General Electric , which reports Friday.

GE disappointed in its last quarterly report, an unusual occurrence for highly predictable conglomerate, and its stock has been driven down in part by concerns about the potential for further surprises from its financial unit. (GE owns CNBC.)

"If they miss again, that's going to be pretty bad. They have to at least match expectations," said Brian Rauscher of Brown Brothers Harriman.

I like to speak to Rauscher around earnings season because he watches the numbers like a hawk. He points out that aside from the financial companies, analysts have actually been raising estimates for the second quarter. The expected improvement in per share profits for the non financial companies in the S&P 500 is 9.4 percent.

"Part of the reason why it's ticked up a little is the energy companies continue to see earnings ratcheted up," said Rauscher. "I think the message is most people would be surprised that the general level of earnings is okay. The financials are continuing to be a minefield, and the homebuilders and autos are weak. I would still make the case, earnings aren't that bad," he said.

"When I start looking at the levels of valuation and where we are—I've been cautious about the market for a long time—either we start to find a floor or the earnings are going to start to deteriorate much more than they are now. That's kind of where we are. We're really at a cross roads here," he said. Rauscher said he is still bullish energy and he is telling clients to be cautious on the market here, and not make new big bets.

"You're going to see the strong and the less strong really bifurcate here," said Rauscher. He said oil is also a wild card for corporate profits.

"Fundamentally I still see this as a slow bleed, but technically I see this as a disaster. Technically the market is acting very poorly. I would make the case that the fundamentals are not supporting the technicals," he said.

Also this week, Chevron will release an interim earnings report Thursday after the bell. Marriott reports quarterly numbers Thursday, and Pepsi Bottling reports Tuesday.

Econorama

On Tuesday, Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson both speak at the FDIC forum on mortgage lending for low and moderate income households in Arlington, Va. J.P. Morgan CEO Jamie Dimon is also scheduled to speak there.

Thursday is the big day. Both Bernanke and Paulson appear at a House Financial Services Committee hearing to discuss oversight and regulation of the financial markets and financial firms. They are expected to discuss how to improve the regulatory structure and avoid future episodes like the Bear Stearns collapse.

Data releases include the NFIB small business survey Tuesday at 7:30 a.m. Pending home sales for May and wholesale trade are also reported that day at 10 a.m. Weekly jobless claims are reported at 10 a.m. Thursday. On Friday, international trade data and import prices for May is reported at 8:30 a.m. Consumer sentiment is released at 10 a.m. Friday.

Fed speakers in the coming week include Richmond Fed President Jeffrey Lacker who speaks in Washington Tuesday at the National Economists Club at 12:30 p.m. San Francisco Fed President Janet Yellen speaks at 11 a.m. on the economic outlook in San Diego Monday and again Thursday at 3:30 p.m. in Portland, Ore.

Boiling Oil

Oil finished the week at $145.29 per barrel, a record high . Weekly oil inventory data is reported Wednesday at 10:35 a.m. Oil was up 3.6 percent for the week. Heating oil was up 5.1 percent for the week, settling at $4.1060 per gallon. Gasoline was 2 percent higher at $3.5710 per gallon on the Nymex.

Also to Watch

Other events to watch include the annual Sun Valley media conference, which attracts major media executives and Wall Streeters. It runs Tuesday through Thursday. Oppenheimer holds a consumer growth conference in Boston Tuesday through Thursday.

Questions? Comments? marketinsider@cnbc.com

As bears lay claim to Wall Street, it's the European Central Bank that will be a big factor in the stock market's next moves.

Two big news items will influence markets ahead of the New York open Thursday. One is the ECB's rate action, and the other is the June employment report.

The ECB is expected to raise rates by a quarter point but traders are nervously watching for comments from ECB President Jean-Claude Trichet to see if he indicates a trend toward further rate hikes. Trichet on Wednesday warned about the risk of "exploding" inflation.

Jobs data is due at 8:30 a.m. and Lehman economists expect a 75,000 drop in non farm payrolls. Traders say anything above 100,000 could spook the markets. The unemployment rate is expected at 5.4 percent. ISM non manufacturing data is expected at 10 a.m.

The Dow closed in bear market territory for the first time in the current market slide. As oil gushed higher, and GM stock drove lower, the market gave up all the gains from an early rally.

The Dow lost 166.75 points Wednesday, or 1.5 percent to 11,215. The Nasdaq fell 53 or 2.3 percent to 2251, also in bear market territory. The S&P 500 lost 23 points, or 1.8 percent to 1261, its lowest close in almost two years. The dollar dipped 0.62 percent to a level of $1.5880 per euro.

Rock n Roll

Stocks close at 1 p.m. Thursday but promise a potential blast of volatility early in the day. Patrick Kernen, who trades S&P 500 options, said he saw a rush of activity in the final 15 minutes. "Coming in at the end of the day, we saw option buying in every month in out of the money puts and out of the money calls," he said.

Kernen, a managing partner with Cardinal Capital, said there was a near 10 percent increase in the VIX Wednesday to 25.9. "We had quite a jump -- to be expected with Dow move," he said. The pre holiday lack of liquidity has exaggerated moves. "Something that might have moved the S and Ps a quarter of a percent, we're seeing move them down 3/4 of a percent."

He said if the jobs report disappoints and the ECB indicates further rate hikes, he expects stocks and the dollar to head lower. "We're going to continue on that path and if oil trades up as a result, I would see us pushing back through the lows." But if the news on jobs is good, and the ECB not that hawkish, stocks could make an exaggerated move upwards.

"I think the downside is the great risk. I hate to be pessimistic but I think that's the reality right now," he said.

After the markets close Thursday, the Fed will make news at 4:30 p.m. with the first valuation of the Bear Stearns portfolio since it agreed to put $30 billion on its books in March. The question is what does this mean for the assets at other Wall Street firms and for the Fed if there's been a decline in value?

Boiling Oil

Oil set yet another record Wednesday and is sending a shudder through the stock market. Crude finished at $143.57 per barrel, up $2.60 or 1.8 percent after a surprising drop in inventories pushed heating oil higher.

M.F. Global senior vice president John Kilduff said the fears about the ECB were also partly behind the rise in oil. "I think that is a big part of the rally. Tomorrow could see another extreme move," he said.

"If the unemployment data is bad and the ECB raises rates, oil will soar on dollar weakness due to the Fed's extreme impossible position," said Kilduff, a CNBC contributor. "Oil and gold are representing the investment of last resort or defensive investing. The lack of confidence in equities continues to push investors into hard assets."

Gold finished up $2.30 per troy ounce, or 0.2 percent at $944.80.

Materials and energy stocks though were the biggest losers even as the commodities gained. The S&P materials sector was down more than 5 percent and the energy sector was off more than 3 percent. Metals, like copper were higher, but stocks moved lower. Coal though sold off.

Stocks in the News

GM declined more than 15 percent after Merrill Lynch downgraded the stock to underperform from buy. Merrill also though scared the market by saying GM could see further downside below $7 and that bankruptcy is not "impossible if the market continues to deteriorate and significant incremental capital is not raised." GM said it has sufficient liquidity for 2008.

Nvidia shares fell sharply in late trading after it forecast lower than expected revenues and margin pressure.

After hours, the Financial Times reported that American Airlines, British Airways and Iberia are close to applying for antitrust approval to form a joint venture.

The Wall Street Journal reports that Morgan Stanley commodities chief John Shapiro, head of one of Wall Street’s largest commodities franchises, is stepping down. The firm said in an internal memo that Simon Greenshields and Colin Bryce, will immediately replace him as co-heads of global commodities.

Questions? Comments? marketinsider@cnbc.com

There's a good chance stocks could hold onto some of their positive tone Wednesday, and maybe even into Thursday, as traders search the rubble for bargains.

"It just feels like short term that it's a little bit sold out, unless you get some very negative news that hits. We'll probably be ok, if the employment report is ok" going into the weekend, said Robert Harrington, head of block trading at UBS. The June employment report is released Thursday at 8:30 a.m. and the market is closed Friday for the fourth of July holiday.

Several other traders I spoke to Tuesday said they too expected to see buying this week with the start of the third quarter, but they stressed that it could be very short lived. Of course, oil could also be a factor for stocks.

Econorama

Data Wednesday includes ADP's private sector jobs report at 8:15 a.m. That report is a kind of preview of what might show up in the government jobs report Thursday. Factory orders for May are reported at 10 a.m.

Investors will also be watching for headlines from two important speeches from Europe. First, European Central Bank President Jean-Claude Trichet speaks, the day ahead of the ECB's Thursday rate decision. Then, U.S. Treasury Secretary Hank Paulson speaks in London where he is giving a keynote speech on the economy and markets at the Royal Society of Art.

Traders say Trichet's early morning speech in France is the one they are watching though. His speech is expected to focus on financial market regulation.

"For the most part, people will be looking for an indication of what he will say Thursday," said currency trader David Leaver of Trichet. "We do expect him to walk the fence here. We don't want him to send the market into any sort of panic or throw out a red alert in terms of a second hike in September."

The ECB is widely expected to raise rates by a quarter point Thursday. Trichet will speak that day ahead of the U.S. stock market open. "If he's extra hawkish, and if those payroll numbers are bad, triple digits, you're going to have a big move lower in the dollar," said Leaver, senior trader at Forex.com. Regardless of the outcome, he says, the currency market could be volatile.

Leaver says the only thing that could change the course of the dollar is rate hikes in the U.S., and that's not likely soon. "What the dollar is going to need on an intermediate basis is going to be a concerted intervention effort," he said. He said it is unlikely there will be any action out of the upcoming G-8 meeting next week.

The dollar Tuesday fell 0.25 percent against the euro, to a level of $1.5783 per euros.

Oil Drill

Oil set another record Tuesday but backed off highs made early in the day. Oil finished at $140.97, up $0.97 per barrel, a new NYMEX record. During the session, crude hit an intraday high of $143.33 per barrel. Oil has been boiling higher on concerns about tensions between Israel and Iran over Iran's nuclear program.

NBC News chief foreign correspondent Richard Engel reported on "Power Lunch" that Iranian Foreign Minister Manuchehr Motaki told him that an Israeli attack on Iran is unlikely. Motaki also backed away from threats that Iran would block oil shipments in the Strait of Hormuz if Iran were attacked. Engle reported that Motaki said that while Iran would respond to any military strike, it also understands the need to protect the flow of its natural resources through the Strait.

This report was shortly after NBC News Pentagon correspondent Jim Miklaszewski reported on "The Call" that the U.S. does not believe that any attack by Israel is imminent.

In Wednesday's session, traders will be watching oil inventory data, to be released at 10:35 a.m.

Whither Stocks

With the third quarter just one day old, financial stocks are the winners so far. The S&P financial sector was up 1 percent, as some of the credit fears lifted. Lehman was up 5.8 percent after its big decline Monday. The worst performers were the S&P telecom sector, off 1.2 percent and the materials sector, off 1 percent.

"I don't think we're out of the woods yet, but people might start looking at some valuations and say even if it's not good news for the next three to six months, these valuations are may be a good place to get some exposure," Harrington said. He said the earnings period could be the next thing to determine direction. If earnings are better than expected, that could be a positive, but the market still has to get by the write downs in some of the bank earnings.

On Tuesday, the market gained some traction after surprising strength in the ISM manufacturing report. But it was after the better-than-expected GM sales report, however, that stocks were able to hold onto gains.

The Dow finished 32 points higher at 11,382, its second positive day. The Nasdaq was up 11.99 at 2304.97, and the S&P was up 4.91 points.

Getting Technical

"I think it's going to be a choppy bounce going into the holiday weekend," said Scott Redler of T3live.com. "The S&Ps have room up to 1305, which isn't a lot. We closed at 1285 and the Dow has room to retest the January and March bottom in the 11,600 area, which was breached last week."

Redler said he used the strategy of getting long the market Tuesday morning in a trade he thinks works until the weekend. He says he currently is looking at very short term trading ranges.

"These one to three day risk reward strategies and key inflection areas have been the only thing that works from the long side, at least until the composure of the market changes. We actually had longer term horizons when the market bottomed last time," he said.

"This is a short-term move on an oversold bounce going into the holiday. Then it will be time to reevaluate the dynamics of the market again," said Redler.

Stocks in the News

UBS shares were weaker in the after hours. Just before the close, the Justice Department said a federal judge issued an order allowing the IRS to request information from UBS about U.S. clients who may be using Swiss bank accounts to avoid federal tax.

Starbucks shares moved higher after it said it plans to close hundreds of more stores than expected and lay off 12,000 full and part time workers.

General Motors and Ford both drove higher in Monday trading. Just before the release of its sales report, GM was trading at its low of the day ($10.71). About an hour later, GM's stock hits its high of the day ($13.26). That swing was the stock’s biggest intraday percent move since the day after Black Monday (10/20/87), when the stock moved up nearly 28% from its low to high within that day. (thanks to our NYSE producer Robert Hum for this fun fact)

Questions? Comments? marketinsider@cnbc.com

Here's to a better second half. We could use it.

You've heard the superlatives. The market has had its worst first half since 1970. Think men on the moon and bell bottoms, and GM shares trading higher than they are now. Ouch.

The Dow lost 14.4 percent; the S&P lost 12.8 percent and Nasdaq lost 13.5 percent so far this year. Dare we say it couldn't get much worse.

The second half looks to be more of the same but many strategists still think stocks will end the year higher. Just find a way to navigate those twin terrors of the credit crunch and rising oil prices.

Let's look first at the year's winners. Of course, one of the best - energy stocks, up 8 percent for the first half (17 percent for the quarter) and technology stocks, up 13 percent for the year but 2.3 percent for the quarter. Oil services were a big winner in the energy sector, up 17 percent for the year. Gold stocks in that period are up 13 percent.

Losers? You guessed it. The financial sector was the worst. It washed out with a 30 percent loss for the year so far, and it's still heading lower.

Wall Street's bears have a serious grip on the stock market, a hold that can only add to volatility in the week ahead.

The Dow escaped closing in bear market territory Friday by a hair, finishing the week at 11,346, a 4.19 percent decline for the week and a 19.89 percent decline from its October high.

In the coming holiday-shortened week, there is some key data, including the June employment report, monthly auto sales and a European Central Bank rate meeting. The fourth of July three-day weekend starts just four days after the end of the quarter Monday. Traders say the quarter-end has added to the turmoil in financial markets as big investors shut their books on the first half of a very tough year.

The Dow did dip for a short period Friday into the bear zone, defined as a 20 percent decline from its October high. It briefly touched a level of 11,331—20 percent beneath the all-time high of 14,164, reached Oct. 9.

Stocks are on track for the worst first half since 1970, and the Dow is so far turning in its worst monthly performance since Sept. 2002. As of now, it is also finishing its worst month of June since 1930.

Nasdaq ended the week at 2,315, off 3.76 percent, and off 19 percent from its October high. The S&P 500 was off 3 percent at 1278, 18.3 percent from its October high. S&P 500, as traders have told us, on a course to test the January lows and it is nearly there. The intraday low in January was 1270, and on Friday, the S&P dipped to 1272.

The S&P financial sector lost 6.6 percent in the past week, taking it to a 17.25 percent drop for the quarter so far. The best performer for the quarter is the energy sector, up 3.65 percent and currently the only S&P sector in positive territory.

Econorama

Oil will also be a factor in the coming week, capable of putting a strangle hold on stocks if it continues to move higher. On the other hand, a decline could open the door for buying in stocks. Oil finished the week up $4.85 per barrel, or 3.6 percent, to a record $140.21.

"I personally think one of the most important set of numbers next week are the vehicle sales numbers because they go directly to GDP," said Deutsche Bank chief U.S. economist Joseph LaVorgna. J.D. Powers sees the market for light vehicles contracting 15.4 percent in the month of June, compared to a year ago, with the U.S. auto makers reporting the worst declines when their numbers are released Tuesday. J.D. Powers predicts a 26 percent decline for GM and a 31.4 percent decline for Ford.

"I don't think the market will move on it that much because it's a weakish kind of number is expected. But I think you're really going to get a story of weak consumer spending," he said.

LaVorgna said he 's also watching the ISM data, reported Tuesday and the Thursday morning jobs data. He lowered his forecast for June non farm payrolls to a reduction of 100,000 from a loss of 75,000. He expects the floods in the Midwest to have been a drag on hiring. He said he expects the unemployment rate to be 5.5 percent, higher than expected and the same as last month.

Other data includes Chicago Purchasing managers data, reported at 9:45 a.m. Monday, the last key report before the quarter end.

Other items to watch include Tuesday's construction spending. The ADP employment report is released Wednesday, as are factory orders for May. On Thursday, weekly jobless claims are reported as usual, along with the employment report at 8:30 a.m. At 10 a.m Thursday, ISM non-manufacturing data is released. Thursday is also when the Fed will report on the value of the Bear Stearns portfolio that guarantees the more than $28 billion in loans for Bear Stearns.

Dollar - Winner or Loser?

Another big event traders are watching in the week ahead is the European Central Banks' rate decision Thursday. LaVorgna said the language will be key. The dollar fell 1.03 percent against the euro in the past week, trading Friday at $1.5790 per euro.

I talked to traders in Chicago's pits about the dollar while I was visiting there Thursday and Friday, and they are all watching the ECB decision with an eye toward dollar—and oil—impact.

The ECB is widely expected to hike rates, a move that is seen as dollar negative.

Kevin Ferry of Cronus Futures Management says a case can be made where the ECB does not hike rates because it is worried about the Euro zone's weaker economies. He also said if there is a rate hike, it may not generate the pop in the euro you might expect. "Global speculators might feel you should sell the currency because of the growth prospects," he said.

If it doesn't cut rates, the ECB stands to lose face and could set off a surge in prices. The swirl of speculation about dollar intervention could certainly come back into o the markets.

Ferry says he doubts there would be intervention but interestingly he said it might be more effective now than in the past because of the electronic marketplace. Previously traders could sit out and then rush back in after the intervention. Electronic trading might be able to make a bigger, faster directional impact.

Food vs. Fuel

Monday's USDA crop report is being closely watched by traders and farmers for clues to the impact of the Midwest floods. Matt Scharl is a trader in the S&P futures pit, but he's also a farmer with a small hundred acre tract in Michigan, planted with corn. "I was going to sell some (corn) futures ahead if this report," he said Thursday. While his farm is far away from the flood area, he suspects the report does not show as much damage to the crop as feared.

Carol Hurley, who trades grains at the CME, said she believes the report will probably not show the total picture of the floods' impact. That may not show up until the August crop report, she said.

Earnings Central

There are just a few earnings reports this week.H&R Block reports Monday. Constellation Brands and Apollo Group report Tuesday, and Family Dollar releases its numbers Wednesday.

(Correction: I incorrectly reported that Yahoo's shareholders meeting is this week. )

Aug. 1 is the day Yahoo shareholders consider investor Carl Icahn's slate of directors.

Questions? Comments? marketinsider@cnbc.com

Stocks could continue to let off steam at the open Friday.

The perfect storm of credit worries, weak data, a record rise in oil and a weakening dollar combined to spin stocks into a downward spiral Thursday. The S&P 500 broke through the key 1300 psychological level, ending the day at 1283, down 2.94 percent. The Dow was off 358 at 11,453, a 3 percent decline, and the Nasdaq was off 79 points or 3.3 percent.

I spent the day walking the floors of the Chicago Board of Options Exchange and the CME. Fitting the fall in the market, there was a pervasive bearishness among traders.

Traders say the markets are under pressure ahead of the end of the quarter Monday, and before the holiday shortened fourth of July week. Oil is adding to the worry. It rose $5.09 per barrel to $139.64, a 3.8 percent jump. The dollar was down 0.55 percent to $1.5764 per euro.

"There's just nothing but bad news. We need good news. Traders are dying," said Doug Prskalo of Blue Capital Group. Prskalo trades S&P 500 options.

The prospect of more big writedowns at banks and a consumer, hampered by poor housing and now high energy prices and inflation, is a bad brew for markets.

What's the Upside?

On a short horizon, Prskalo said the market may stay neutral or down Friday. "we could bounce Monday. If we don't' bounce Monday, we're going to be in for trouble," he said.

CNBC's Rick Santelli, who reports from the CME Group, said the end of the quarter/end of half year trade might actually create a buying opportunity. Friday will determine whether this is the first weekly close below the March lows, just before the Bear Stearns bailout. If it does close at that level, it will be viewed as a technical buying zone.

Econorama

Friday's data includes personal income and spending at 8:30 a.m. There is inflation data in that report, in the form of the PCE deflator, an indicator closely watched by the Fed. University of Michigan consumer sentiment is at 10 a.m.

Testing Lows?

"I think we're going to see some pretty decent fluctuations up and down near term. My personal opinion is we're going to see a long grind down," said Patrick Kernen, a managing partner with Cardinal Capital.

"We could test the lows of January, right down to 1250" (on the S&P), said Kernen, who trades options on the S&P 500 at the CBOE. His time frame for that would be the next month and a half. "If we get down there, I think we'll see that panic and for me, personally, that's where I'd get long the market."

Prskalo said the S&P could test 1250 and dip as far down as 1230 before a rebound.

Dart Options' managing partner Tim Feeney said the market is getting closer to the bottom of his range. Trading Thursday was not panicked. "It was an orderly sort of progression down," but like others, he sees a period of sloppiness for the market. Feeney trades S&P 500 options as well.

No History as A Guide

Richard Berg of Performance Trust trades mortgages and credit derivatives. He sees a lack of liquidity across the markets. I ran into him at the CME just after his appearance on "Power Lunch." He said a confluence of factors are disturbing, including record high oil prices.

"Every professional here, if they admitted it out loud, would say 'I have no advantage because we are in such uncharted territory. Someone without knowledge might even be at an advantage,'" he said.

He said traders use history to guide them and this market doesn't fit anything in their experience.

Berg said the markets are also being impacted by the unwillingness of the big firms to take on risk and get on the other side of certain trades in stocks, derivatives and bonds, and that is adding to volatility.

Paul Carbonara, who trades S&P 500 futures, said he thinks the market will trade in a volatile up and down pattern, as buyers come out on the dips. But he also says it would be surprising if the market seeks to retest January lows.

Questions? Comments? marketinsider@cnbc.com

Now that the Fed's June meeting is out of the way, the focus on economic data will intensify as investors try to find a road map for the markets.

There are a few economic headlines expected Thursday. Weekly jobless claims are at 8:30 am New York time as is first quarter real GDP. Existing home sales for May are released at 10 am.

The direction of oil and the dollar will also factor in. Two disappointing after the bell tech earnings reports could pressure Nasdaq.

Research in Motion earnings of $482.5 million and $2.24 billion in revenues were double, but the company missed analysts' estimates by a penny. The company also put its current quarter earnings at the low end of analysts' range and said it would increase spending to support new products. RIM's stock was punished in the after hours. Remember, there had been a lot of bullish street talk from analysts going into this report.

Oracle's net rose to $2.04 billion from $1.6 billion, but it too talked down expectations and its stock sold off.

Dow a Dud

The stock market initially moved higher after the Fed announced it was leaving rates unchanged Wednesday afternoon. In its statement, the Fed showed increased concern about inflation. The Dow finished up just 4 points to 11,811 after a triple digit rally fizzled, while the Nasdaq finished up 32 points or 1.2 percent. The S&P 500 was up 7 points or 0.5 percent. Oil moved off its lows after the Fed decision, finishing the day down $2.45 at $134.55 per barrel. The dollar was off 0.67 against the euro at $1.5676.

Market activity Wednesday revolves around the Fed, and the dollar hangs in the balance.

The Federal Open Market Committee winds down a two-day meeting and is expected to release its statement at 2:15 p.m. The Fed is widely expected to leave rates unchanged but make comments that show it is concerned about the weak economy and inflation. The question is just how hawkish on inflation will it be, and how much will the Fed tilt toward an ultimate change in its bias to a tightening mode.

Keep in mind, the Fed's statement comes after European Central Bank President Jean-Claude Trichet testifies before the European Parliament on the euro zone economy Wednesday. If he keeps to form, Trichet will talk about tackling European inflation and possibly make some dollar crushing comments.

Fed Chairman Ben Bernanke has put his own stake in the ground on the dollar and for that reason it will be interesting to see just what the Fed has to say about inflation. Remember on June 3, Bernanke said dollar weakness is contributing to an unwelcome increase in import prices and consumer price inflation. He also said the Fed is monitoring developments in currency markets, side-by-side with Treasury.

In a note, Miller Tabak's Tony Crescenzi said the action at Tuesday's Treasury auction may be a sign that investors are backing away from the recent view that the Fed will be raising rates in the near future. He said the strong demand for the $30 billion in two-year notes was the best since last October. The auction yield was 2.922 percent, well below expectations and a sign that there's strong demand for the issue, he says.

Crescenzi says he expects the Fed to place more weight on the fragile economy and financial system than on inflation for the time being.

The Dow Tuesday finished off 34 at 11,807 and the S&P 500 was up 3.71 points at 1,314.29. The Nasdaq, for a second day, made the biggest move, falling 17.46 points to 2,368. The dollar fell 0.31 percent against the euro, taking it to $1.5572 per euro. Year-to-date, it is down 6.25 percent.

The two-year finished with a yield of 2.842 percent.

Boiling Oil

Oil inventory data is reported at 10:35 a.m. Platts expects to see a draw down of 1.7 million barrels of crude and 750,000 barrels of gasoline. But it expects distillates stocks to be up 1.7 million barrels when the Energy Information Administration and American Petroleum Institute release weekly data.

Nymex crude finished a relatively quiet session Tuesday at $137, up $0.26 per barrel.

Drilling for Speculators

While the issue of offshore drilling is brewing on the sidelines, Congress continues to dig into whether speculators in the oil markets are causing sky high prices.

On Wednesday, the Joint Economic Committee takes on the question of whether oil is in a bubble or a new reality. Cambridge Energy Research Chairman Dan Yergin leads off the testimony.

"There's two meanings for speculators," Yergin told me. "There's the technical term. That's the people who provide liquidity and enable people like natural gas producers and farmers to hedge their risk. Then there's the colloquial meaning that ranges from manipulator to risk taker to bubble maker."

Yergin said he is being asked to discuss the influence of financial markets on the price of oil. "Obviously, the financial markets play a much bigger role than they used to. There's a "shortage" psychology in the financial markets, based both upon current market conditions and expectations of a long term shortage," said Yergin, who is CNBC's global energy analyst.

Here's something to consider as well. Dow Jones reported Tuesday that China's diesel imports in May were 34 times greater than a year ago, and for the first time in two years, some of that came from the U.S.

Econorama

There is some economic data due Wednesday. Durable goods are reported at 8:30 a.m., and new home sales for May will be released at 10 a.m.

RIM Shot

Wednesday is an interesting day for earnings. The most widely anticipated appears to be Research in Motion, which has has no fewer than a half dozen analysts in the past week making favorable comments ahead of the earnings report. The latest one was RBC Tuesday, which raised its price target to $165 from $150. RBC is not alone in expecting above consensus results. Analysts expect earnings per share of $0.85.

Strategas Research analysts today say the stock market looks oversold and could be setting up for a short-term rally.

In a note today, the firm looked at the record level of short interest and other factors. Last week, the percent of short interest on the NYSE was at 4.2 percent, an all time high.

"We typically look at short interest as a contrarian indicator. We said the record level of short interest that we're seeing now at one time could be explained by the amount of hedge funds, but since hedge fund assets recently plateaued and made a top, we just think this is a very bearish sentiment which is a contrarian sign," said Chris Verrone, an analyst at Strategas.

Verrone says that Strategas Research's own proprietary market sentiment index is now at levels last seen in April, and it is pointing to an oversold condition. "It's at a level right now that we traditionally associate with a buy signal. It's one of the reasons we see a rally in the next two to three months," Verrone said.

"For the most part, the economic data has been bad, not awful. We think in the next three months there could be room to run, but we remain pretty bearish in the next 12 to 18 months because we think we pay for a lot of the stimulus in '09, and we think we set up for a more traditional cyclical slow down the second half of '09," he said.

Verrone says you can't put an exact time frame on when the market could make a move but it looks like it's getting ready. On the horizon is the end of the quarter Monday, and then earnings season gets underway the following week.

Strategas says it's not surprising that the most negative sentiment is among the market's highest beta sectors - financials and consumer discretionary. "For those with long-term time horizons, it's hard not to be bearish on these two sectors. Still, the current short interest data suggest that the trade is presently over-owned," the firm says in its note.

Check out those financials today. They are showing some signs of life after days of selling. the S&P financial sector was up more than 2 percent at midday. Stocks like Bank of America, American Express, Goldman Sachs,JP Morgan and Citigroupare all up two percent or more. Lehman is more than 5 percent higher. Watch it though. One trader cautions we're seeing some end of quarter trades, and sellers are looking for any sign of strength to make their move.

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