Stocks will be on inflation watch Thursday. Volatile trading in oil and commodities promises to spill into the stock market again. On Wednesday, energy and other commodities rose, reversing a selling trend and worrying investors, who have been hoping for a reprieve from inflation.
Some hard data on inflation is also expected when the consumer price index is reported at 8:30 a.m. July CPI is expected to rise 0.4 percent.
Other important pre-opening reports include weekly jobless claims, expected to come in at 435,000, and Wal-mart's earnings. Investors will be watching Wal-mart's outlook and comments about the important back-to-school shopping season.
Wednesday's stock market was again skittish about the financial sector. The trigger was, in part, a Merrill Lynch downgrade of several firms. Stocks also took a hit as oil prices began bubbling up after weekly inventory showed declines in the supply of crude, gasoline and distillates in the last week. The oil market is also becoming more sensitive to news of Russia's military action in Georgia.
"This is not a trading tape. This is a Rorschach test. Anybody who looks at it can see whatever they want to see," said UBS' Art Cashin of Wednesday's stock market action.
The Dow fell 109.51 points, or 0.9 percent to 11,532, and the S&P 500 tumbled 3.76 points, or 0.3 percent to 1285.83.
Cashin, director of floor operations, said the "cocktail napkin" technicians thought the area where oil would find support was $110 to $113 per barrel. If it had broken down through that level, it could dip to $80. Or if not, it could bounce. Bounce it did, rising $2.99 per barrel Wednesday, or 2.7 percent to $116.
"The big deal is if it holds and closed over $115.60, it might have set the chart up for a real short squeeze. If it gets to $117, it will trap those shorts," he said. Energy stocks were Wednesday's winners, gaining 3.4 percent.
Also critical Thursday will be what happens in the financial sector, which was down nearly 3 percent Wednesday after a more than 5 percent decline Tuesday. Merrill Lynch downgraded Citigroup, Goldman Sachs and Lehman to underperform Wednesday. Merrill's chief investment strategist Richard Bernstein also said the credit crises is broad and deep and not likely to end soon, a comment that also sent a chill through the sector