Stocks may try to shake off losses Thursday, but spiking oil prices and a weak dollar could hold back efforts to rally.
Weekly jobless claims, reported at 8:30 a.m., and OFHEO's first quarter home price data at 10 a.m. are the only economic data points on the menu. For the energy market, natural gas inventories are released at 10:30 a.m.
Oil's ramp up Wednesday scorched stocks even before the 2 p.m. Fed news gave them a final kick. In its meeting minutes, the Fed basically signaled the door is shut on further rate cuts and said cutting rates in April was a close call. The Fed also released a revised economic forecast showing a slower growth rate of 1.3-2 percent for 2008 and a higher view of unemployment, to a level of 5.5 to 5.7 percent from 5.2 to 5.3 percent.
The Dow fell 227 or 1.8 percent to 12,601. The Nasdaq was off 43.99 to 2,448.27, off 1.8 percent. The S&P 500 slumped 22 points or 1.6 percent to 1,390.71.
"It's a given the bears are out of the woods, if not in complete control," said Art Cashin, UBS director of floor operations. Cashin pointed to an important move in the S&P which fell below 1,400. "They're down a lot of money in two days, so they're technically oversold but they have damaged themselves."
Cashin said the fall below 1,400 means that stocks could now be moving lower to the middle of a range between 1,380 and 1,430 on the S&P. He said this latest move would give weight to the argument that the market's recent rally was just a rally in a bear market.
"It certainly has many of those aspects. It topped out just as the Vix bottomed out," said Cashin, noting there were also signs of complacency.
For Thursday, stocks "are very oversold. They could try to rebound. You're going to stay volatile because you're coming up on a three day weekend." Cashin said the market should get thinner as investors leave for the weekend, but stocks mostly do better the Friday before a long weekend.
Earnings reports due Thursday include several retailers, including Ann Taylor, Barnes and Noble, Gamestop, the Gap, and Aeorspatiale
Oil was the big culprit in Wednesday's markets as traders ran the price above $134 in the after hours electronic session, a move of more than $5 a barrel. Crude futures hit $135.04 early in the Asian session Thursday.
Like other stock traders, Cashin is paying a lot of attention to oil prices these days. "I'm terribly worried about oil. There's something strange and unusual there."
"Something big and important is about to happen," he said of the oil market. He said it feels as though it could take one of two moves, sharply higher or lower.
John Kilduff, M.F. Global senior vice president, trades the oil market, and he said Wednesday's action may be signaling something.
"We're on the fence right now as to whether we are willing to identify today's move as a blow off top or a capitulation," said Kilduff, a CNBC contributor. "In studying this so far, looking at every sort of interval, there hasn't been a (technical) bar that set a new high to this degree and stuck out so blatantly ... The parabolic move has many characteristics of presenting a blow off top."
Kilduff says his high end target for oil remains at $138 for now. "But as I said today, we're willing to declare victory earlier ... If this is the blow off, it will be precipitous."
The oil market moved higher amid supply concerns and as the dollar slumped. The dollar lost 0.8 percent to $1.5790 against the euro, after Tuesday's one percent drop. The 10-year fell 13/32, raising its yield to 3.824 percent.
"The dollar correction had major technical damage," said CNBC's Rick Santelli. "There's the notion that for every dollar higher in oil, there's a commensurate rally in currencies against the greenback."
Stocks in the News
Wednesday's news out of AMR was one of the most troubling signs yet that the high oil prices are capable of crippling a key industry. AMR CEO Gerard Arpey's comments were stunning as he announced the reduction in flights, workforce and the addition of charges for all checked baggage.
"The airline industry as it is constituted today was not built to withstand oil prices at $125 a barrel, and certainly not when record fuel expenses are coupled with a weak U.S. economy," he said in a release.
"We must find ways to cover the cost of providing our services so that we can remain viable and have the resources to reinvest in our company for the future," he also said. Viable. AMR stock lost more than a quarter of its value on the news, and other airlines tanked along with it.
AMR's former CEO Robert Crandall appeared on CNBC Wednesday morning, and his comments were also startling. "The fact of the matter is it's clear fares have got to go up. Unless you want to lose our domestic airlines industry altogether, we're going to have to sit down and put some sensible re-regulation in place," he said.
Crandall said the U.S. needs a national transportation policy. For instance, airlines could fly more efficient planes and trains and buses could become a bigger part of the transportation mix.
"It makes no sense to fly planes between New York and Washington," he said. "I sincerely hope eventually the Department of Transportation is going to do what it's supposed to do and that is produce a national transportation plan which includes some rules and regulations and oversight for airlines so we can hold together a competitive domestic industry," he said.
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