Whether stocks add to Tuesday's heady gains or not will be determined in part by whether oil prices stay in a downtrend.
There are a few earnings to influence the market Wednesday, and traders are wary of Freddie Mac's early morning report. Cisco's after the bell earnings report though should be a positive catalyst.
The Dow Tuesday rocketed 331 points. The market added to already sharp gains once the Fed's afternoon statement showed it was as concerned about inflation as the economy. In other words, it took a neutral stance.
But stocks started moving up early, as oil trended lower, and traders expect crude to be as big a factor Wednesday. There is no economic data of note, but there is weekly oil inventory data.
"It's all oil. Oil, oil. That's all I care about, and that's what prompted some pretty decent short covering in here," UBS director of floor operations Art Cashin said from the floor of the NYSE, shortly after the Fed announcement.
Oil hit a three-month low of $118 per barrel and finished at $119.17 on the Nymex. Concerns about the slowing global economy, along with a noticeable decline in U.S. gasoline use, are helping drive oil lower.
Commodities in general again slumped Tuesday on concerns that global economic growth is slowing, and emerging economies will no longer pick up the slack or provide the anticipated demand. Gold settled at $886.10, down $21.80. The dollar jumped 0.78 percent against the euro to a level of $1.5464 per euro.
Platts survey shows analysts expect weekly crude inventories to be down by 1.2 million barrels when they are reported at 10:35 a.m. Wednesday. Gasoline is expected to be down by 1.4 million barrels and distillates are expected to increase by 2.3 million barrels.
M.F. Global's senior vice president John Kilduff said oil has been in a range of $118 to $126. "We're in a channel and we're pressing the low end of it," said Kilduff, a CNBC contributor.
"Technically, (oil prices) it's looking negative, and even despite today's buoyancy in the stock market, you have to be concerned about the economic outlook. It's looking to go lower still. We were watching $121 for the last several weeks, and now we're watching $117," he said.
The Dow finished at 11,615, up 2.9 percent, and the S&P was at 1284.88, up 2.8 percent.
Scott Redler, chief strategic officer of T3Live.com, says for now the path of least resistance for stocks is higher, and this may be the beginning of a trend that stays in place for a few weeks. Stocks have now established three higher lows.
He told me just before the Tuesday close that stocks were near levels where they could be challenged—1285 on the S&P 500 and 11,600 on the Dow. If those targets are successfully crossed, the next level is 1320 to 1330 on the S&P and 11,900 to 12,000 on the Dow.
At those levels, stocks would look risky again and investors need to be cautious, he said. Another key factor will be how low oil actually goes, and a risk there is a macro event that could cause it to spike.
Earnings expected before the bell include Time Warner , Blackstone , Sprint Nextel , Nasdaq OMX , Och-Ziff Capital , and Marsh and McLennan . Devon Energy , Transocean and El Paso also report before the bell.
AIG reports after the bell, as does Sunoco .
Sign of the Times - Wine Cooler
Smith & Wollensky chairman Alan Stillman was on "Squawk Box" Tuesday, and he said business is great at his high-end New York City restaurants. "It's the first time in my years in the restaurant business when I can say that New York City is a completely different country than the rest of the United States," he said. Outside of New York the high-end restaurants are feeling the pinch, "but they are booming in New York."
Stillman said his customer base definitely includes tourists from abroad, but Wall Streeters and other New Yorkers are still dining out. As he left the studio, he told me that he hasn't seen a change in the types of meals customers are ordering, but they have toned down their wine purchases. "$200 to $500 bottles of wine are not selling the way they were two to three years ago," he said.
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