Wall Street's bears are currently behind the wheel, steering stocks lower down a bumpy road.
Traders say the debate has been won, and the market has now set its course lower for the time being. The Dow finished Wednesday at 8284, down 2.2 percent; the S&P 500 was down 24 at 883, and the the Nasdaq slipped 3 percent to 1664.
"We're into the correction phase, so it's going to be a little bit bumpy over the next two weeks," said Art Cashin, director of UBS floor operations. "The logical thing is you get a partial correction and then we pull back up a bit ... We've got to see how the patient reacts."
From 'Fast Money':
Thursday's market is on inflation watch, as the producer price index is released at 8:30 a.m., but the key number is weekly jobless claims, also at 8:30 a.m. Wal-mart , an economic bellwether of sorts, reports profits before the bell. Sony and Lear also report. Kohl's and Nordstrom report after the bell.
Disappointing retail sales for April - a decline of 0.4 percent - pushed already weakened stocks lower ahead of the opening. As stocks crumpled, investors ran into bonds, sold commodities and again added to dollar positions. The dollar gained 0.42 percent against the euro, but it fell another 1.1 percent against the yen.
Treasurys rallied on weak retail sales data. The 30-year was up more than a full point on the day, and was yielding 4.09 percent.
"The change in sentiment, from last Friday to today is really dramatic," said Brian Edmonds, head of interest rate trading at Cantor Fitzgerald. The 10-year has gone from a yield of more than 3.30 last week to an intraday low of 3.09 percent Wednesday.
He said bonds were driven in part by the weakness in stocks. "I don't think we're out of the woods in terms of pressure on rates, especially with all the supply coming," he said. But, "I think we run out of juice in the low 3 percent on the 10-year," he said.
Rick Schottenfeld of Schottenfeld Group called a top in the stock market's current run on "Closing Bell" Friday. On Wednesday, he said in an interview that he'd been looking for a sell off for a few days. "I think we've got a five to 10 percent pull back," he said. "I think people can get hopeful and we can have some rallies here and there."
But Schottenfeld said he believes the gains will not hold longer term, and the market will return to its lows. He said the market has been responding to signs the banking crisis is getting fixed, but it hasn't dealt with the longer term problems with the economy. "I think ultimately the rallies succumb to the economic realities and we make new lows," he said.
He said he believes 930 on the S&P is about as high as the market can go. "The next couple of months are trickier ... People should be cleaning up their portfolios. So if we start making new lows on the back of the economy they are in a position to survive," he said, adding that he himself is a short term trader and can make money on the short side as well as long.
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Scott Redler of T3live.com watches the market's technicals, and last week he told us stocks could head lower. He expects that move to continue for a bit before stocks turn back up. "There could be a pause at 875 and then a compelling buy at 850 to 855 ... But you should be prepared for an overshoot that would take the market to 822 to 830," he said. Redler said the market's uptrend, in place since early March, was "bent" on Monday and "broke" on Tuesday.
The market's worst performers this week have been financial stocks, which were leaders as the market gained. The S&P financial sector was down more than 5 percent Wednesday, and down 13.3 percent for the week so far.
In the last couple of days, many financial companies are issuing new shares in an effort to raise capital to pay back the government's funds. They have been followed by a parade of other companies, looking to raise cash before stock prices wilt. These billions in new shares also add pressure to the market.
Other events to watch Thursday include Ford's annual meeting at 8:30 a.m. in Wilmington, Del. In Washington, Treasury Secretary Tim Geithner holds a press conference with HUD Secretary Shaun Donovan to provide an update on the Administration's housing plan at 10:45 a.m.
President Obama holds a town hall meeting on credit card debt at noon.
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