After Tuesday's big up draft, traders agree on just one thing -- volatility is the one constant in this stock market.
The Dow shot up 213 points, or 2.1 percent to 10,404, while the S&P 500 blasted through its 200-day moving average, to end the day at 1115, up 2.4 percent. The fa ct the euro held at a level above $1.23, was seen as a positive catalyst in a broad-based rally of stocks and commodities.
"We're going to see a lot of back and forth action," said Brian Belski, chief investment strategist at Oppenheimer and Co.
"It's a trader's paradise," he said. "Volatility is here to stay. Who is to say we're not going to be down 2 percent tomorrow."
Traders were split on whether the move higher in stocks signals further gains or is just another one-day event that will be followed by heavy downside volatility. Some traders saw the market's ability to close above the 1108-1110 range on the S&P as a positive and the possible technical driver for a near term move higher.
They also said the rally was fanned by short-covering and the activity of some real buyers, who fear missing out on what might turn out to be the next leg up. "I think a lot of it is the market is teeing up for earnings early next month. There's not a lot of macro noise out there today to take the market down," said one trader.
Peter McCorry, who trades bank stocks at Keefe Bruyette, points to the low market volume, a concern of many traders. "There's no volume confirmation," he said. Recently, when stocks move higher, "they've all given it back in the day or so...we're kind of caught in a trendless trend."
What to Watch
On Wednesday, producer price inflation data and housing starts are released at 8:30 a.m. Industrial production is reported at 9:15 a.m. FedEx, seen as an economic bellwether, reports earnings ahead of the opening bell.
Fed Chairman Ben Bernanke speaks in New York at 5:45 p.m. at the Squam Lake Group Conference, and he will take questions from the audience. The topic is fixing the financial system.
BP, which spilled more bad news after Tuesday's closing bell, will stay in the spotlight. Chairman Carl-Henrico Svanberg and CEO Tony Hayward are scheduled to meet with President Obama, who was to address the nation on the spill Tuesday night. There are also more Congressional hearings on the spill scheduled for Wednesday.
BP shares erased Tuesday's gains and headed south after the closing bell, when the government reported that the burst pipe could be spilling between 35,000 and 60,000 barrels per day into the Gulf of Mexico. The previous estimate had been 20,000 to 40,000. Also after the closing bell, Reuters reported from a source that Bank of America Merrill Lynch told its traders to limit their trades with BP after 2011. (BP shares in London also ended lower .)
BP bonds had a banner day in terms of volume, trading more than $900 million face amount, an extraordinarily high amount for the company. Fitch, early in the day, downgraded BP's credit rating to BBB from AA and put the company on negative watch.
"You basically turned over 5 percent of the bonds outstanding, so that is a lot," said Andrew Brenner, global head of emerging markets fixed income at Guggenheim Securities. The BP 2013 bonds traded with a yield of about 8.50 percent Tuesday afternoon.
Financial stocks will also remain in focus as a joint House and Senate committee continues to work on a compromise financial reform bill.
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