Where there was dread, there's now a ray of hope.
At least that's how some traders were talking at the end of the day Thursday, after the stock market rocketed 300 points in the final hour, the mirror opposite of Wednesday's frightening performance.
Going into Friday, traders say there may be some positive follow-through based on the course of news from Washington overnight.
They are looking for follow-up to news -- first reported by CNBC's Charlie Gasparino -- that Treasury Secretary Hank Paulson is discussing a plan to cordon off Wall Street's toxic debt, much like the government did in the savings and loan crises of the early 1990s. This Resolution Trust-like plan is in no way finalized. It is, though, certainly being discussed in Wall Street, Congress and the White House -- and the idea of it was enough to inject a jolt of confidence back into the stock market.
CNBC's Companies in the News:
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- Morgan Stanley
Art Hogan of Jefferies said there are two ways to restore confidence when investors are as despondent as they've been this week, watching one financial institution after another fail, get rescued or sold:
"You can do something innovative like this, which is what seems to be happening... They've got a new tool they're going to pull out," he said, noting that the original RTC was a success.
"The other thing is you can get a fireside chat with a strong leader who you believe is behind it, and we haven't had that."
The news came after a day in which the Fed was actively pumping liquidity into financial markets, joining with foreign central banks to pump up confidence around the globe. At the same time, the SEC moved to reign in short selling and the U.K., too, said it was cracking down on shorting.
"It's a very low base to be starting from, so if this is the turning of the tide, the explosive upside is very possible because we spent so much time selling this market down," said Hogan. He said the market was in a pattern of pain, generated by daily expectations that there would be bad news about some financial institution or other.
Morgan Stanley, which is in talks for a possible sale, does not have to be sold, Hogan said. He said its earnings were healthy and it could continue to stand alone if it were not under siege by Wall Street.
Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson are expected to meet with Congressional leaders Thursday night to discuss options, according to CNBC's Steve Liesman. Those developments are being closely watched by traders.
The Dow, meanwhile, finished the day up 410, a 3.9 percent gain to 11,019. The S&P was up 50, or 4.3 percent, at 1206.