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Market Insider: Wednesday Look Ahead

Worries that weak earnings will stall the stock market's advance did just that on Tuesday, and there are few catalysts to change the tone Wednesday in what will become an increasingly quiet holiday week.

Alcoa's after-the-bell report of a first-quarter losswas slightly worse than expected and showed the bite the recession has made into the company's operations, despite its cost cutting efforts. The first Dow component to report results, Alcoa said it lost $497 million, compared to a profit of $303 million last year.

Bed, Bath and Beyond shares leaped over 10 percent higher after the bell on a better-than-expected quarterly profit.

On Wednesday, the big item traders are watching is the 2 p.m. release of the minutes of the last Fed meeting. They hope to see discussion about the Fed's thought process on quantitative easing. On the data front, wholesale trade data is reported at 10 a.m.

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The Dow Tuesday fell 186 points, or 2.3 percent to 7789, and the S&P 500 tumbled 2.4 percent to 815. The Nasdaq though slumped 2.8 percent to 1561, while the Russell 2000 was off more than 3.5 percent.

"It's not going to go up in a straight line. We haven't solved the problems. We've addressed some of them, but they're not solved," said Tim Smalls of Execution LLC. "Everybody assumes earnings are going to be stinky and as long as there are no major surprises, we'll settle back in and regroup."

The dollar gained a percent against the euro Wednesday, and oil slid . Treasurys gained slightly.

On Wednesday, bond traders will be watching another major auction, when $35 billion in 3-year notes come to market.

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"The Fed is buying a little bit shorter than the two-year sector. There could be $5 to $7 billion worth of purchasing ahead of the auction," said Brian Edmonds, head of interest rate trading at Cantor Fitzgerald. Edmonds said he expects to see a good bid. "The trend has been in the market that we get a reasonable concession," he said.

"I think there will be a chance tomorrow we'll be selling higher prices than we're seeing right now," he said Tuesday afternoon.

Short Selling and the "Big Bang"

Investors will also be interested in the Securities and Exchange Commission's 10 a.m. meeting, where it will consider reinstating the "uptick rule" among other measures. The uptick rule, eliminated in 2007, prevented traders from shorting stocks unless there was an uptick in price. Some investors believe the elimination of the rule unfairly allowed short sellers to drive stock prices lower.

Another major markets change actually goes into effect Wednesday, when the first step toward a clearing system for credit default swaps is instituted.

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CDS are contracts which offer insurance against the default on the debt of banks, companies and other entities and have been structured in a way that has made it impossible to have a uniform clearing process. Termed the "big bang," the move to structure a clearing system is being sought as a way to bring transparency to the CDS market.

On Wednesday, individual CDS will be rolled over into a new standardized type of contract, a first step. It is unclear how CDS and the corporate market will respond to the changes.

"It's going to create a lot of confusion in the markets," said Greg Peters, head of global credit market research at Morgan Stanley. "You're not compelled to do it, but you'll be left with the most illiquid instrument if you don't."

"Ultimately, it (the CDS) will look a little bit more like a bond in that way. What we've seen leading up to this is we've seen a lot of collapsing in positions. Being short in CDS has shrunk because of the cash piece ... We've seen a continued trend toward buying cash corporate bonds but I think the market will rightfully be distracted on trying to get a handle on all this stuff," he said.

There are a few earnings Wednesday, including Constellation Brands , Family Dollar and Shaw Group .

Questions? Comments? marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.