Despite the Dow and S&P 500 hitting their highest levels since 2008, investors are likely to be on edge Wednesday.
The European Central Bank plans to announce early Wednesday how much banks have taken out in low-cost loans, which is likely to set the tone for markets. There also is a handful of economic reports and comments from the Federal Reserve.
Stocks closed higher Tuesday, with the Dow finally finishing above the psychologically-important 13,000 mark for the first time since May 2008. The S&P also closed at its best level in almost four years.
The question now is whether the market can hold these gains or investors will decide to take profits after a stellar run-up that has the Dow and S&P now on track for their best February since 1998.
“In the very near term, we see some potential for a pause,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research. Still, Detrick said he expects the rally to continue, noting that 1,500 on the S&P by year-end is “not out of the question.”
The ECB will disclose how much banks have borrowed from the central bank at about 5 am ET Wednesday. The so-called Long-Term Refinancing Operation (LTRO) is the ECB's second effort to inject liquidityinto Europe's weak financial system.
While the ECB’s first mass injection back in December was widely regarded as a success, the results of the second round will be watched even more closely. The exact size of the operation is still unknown, but most analysts believe it will be around 500 billion euros.
“The size of the participation may be an important factor in assessing the market's response,” wrote Marc Chandler, global head of currency strategy at Brown Brothers Harriman. “The general view seems that the larger the participation, the better for risk assets, including the euro.”
“Even if this assessment is true, we should expect the markets to respond differently to what very well may be the last LTRO than the first,” continued Chandler. “’Buy the rumor, sell the fact’ may not quite capture this point, though that remains a risk as well.”
Fed, Economy & More
Federal Reserve Chairman Ben Bernanke is scheduled to deliver his semi-annual testimony on monetary policy to Congress (colloquially known as the Humphrey Hawkins speech) on Wednesday, speaking before the House Financial Services committee at 10am ET.
“I don’t expect any surprises in the written testimony but the Q&A portion could be interesting,” said Brian Battle, vice president of trading at Performance Trust Capital Partners. “This is the new era of transparency and [the Fed] has been trying to be more detailed and descriptive.”
And the latest Beige Book report is expected at 2pm ET, which will provide a clearer reading on the economic conditions across the 12 Fed districts.
On the economic front, the final reading on fourth quarter GDP is expected Wednesday at 8:30 am ET with economists expecting growth to remain at 2.8 percent. Chicago PMI and the mortgage applications are also on tap.
“Unfortunately, economic numbers aren’t real drivers these days,” said Battle. “We’re still driven by headline news.”
Oil Prices Decline—More Pullback Ahead?
Oil prices will continue to be in focus after crude prices declined for the second-straight session Tuesday, settling below $107 a barrelafter the disappointing durable goods orders report sparked further profit taking.
“This is really a technical correction because [oil prices] have run up so much over the last few weeks,” said Anthony Grisanti, president of GRZ Energy. “We’re right above some key support levels $105.5 - $106 a barrel.”
What Else to Watch
Companies reporting earnings before the bell Wednesday include Costco , Joy Global , Staples , Liz Claiborne and Sodastream .
—Follow JeeYeon Park on Twitter: @JeeYeonParkCNBC