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.

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