Markets are looking for another handout from the Fed, so whatever Fed Chair Janet Yellen says or does not say Friday will be a big deal.
Stocks bounced back Thursday after a rough opening, with the ending the day less than a point higher, and the Nasdaq up 2 points. The Dow was off 24 points, but the small cap Russell 2000 was up nearly 1.3 percent.
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St. Louis Fed President James Bullard was credited with the turnaround, when he said the Fed should consider continuing to buy bonds beyond the scheduled end of quantitative easing later this month, due to market turmoil.
"The market was looking for a lifeline. It found one in his comments," said Mark Luschini, chief investment strategist at Janney Montgomery. As for Yellen, he does not expect her to say anything new or stray from recent remarks.
Yellen speaks on economic opportunity at the Boston Fed's 58th Economic Conference Friday at 8:30 a.m., but she is not expected to take questions. The conference focus is on inequality of economic opportunity. Boston Fed President Eric Rosengren is also speaking there and will appear exclusively on "Squawk Box" at 7:30 a.m.
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Bullard, who can be hawkish, surprised markets with his comment that the Fed should continue to proceed with $15 billion a month in securities purchases, which has been pared back from an initial $85 billion program.
"Clearly, risk is back on after Bullard made his comments. We've said this all along that the moment in which the Fed tries to scale back and ultimately end QE is going to be tough for stocks," said Gina Martin Adams, institutional equities strategist at Wells Fargo Securities.
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Adams said she now expects to hear other Fed officials sounding more dovish, and the market is quickly shifting its focus to the upcoming Fed meeting at the end of the month. The Fed has long been expected to announce its final tapering of the quantitative easing program at that meeting, and then set a course for rate hikes sometime next year.
While economists have mostly expected a mid-year rate hike, the markets have been pricing in a later time frame. Expectations were pushed back to late in 2015 by volatile markets this week.
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"If the Fed continues to proceed on course and continue to move the bar on ending QE, the market is going to remain weak. I think with this alternative scenario where the Fed starts to backpedal they create a near-term floor. I think we're starting to see this backpedaling now," she said.
Adams expects stocks to do better longer term, but in the short term trading could be volatile and will depend on what the Fed says. "These things that are happening are precisely what happened at the end of QE1 and QE2," she said.
Luschini said the big concerns the market is grappling with right now are weak economic data from abroad and the uncertainties around Ebola.
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"We might get a few days of a technical rally and then we would sell off again unless you have resolution of the other issues," he said.
Small caps were among the first stocks to turn positive in morning trading Thursday, and Adams said it would normally be positive that they were lead the gains. "Small caps bottoming and bouncing tend to be a good sign but it could be volatility in a larger trend so I don't want to read too much into it," she said. The Russell is now up 3.1 percent for the week, while the S&P is down 2.3 percent.
Energy also bounced on Thursday, with West Texas Intermediate rising above $83 after falling below $80 in early trading. That helped boost the energy sector, and it was the best performer of big cap sectors, with a gain of 1.7 percent.
Earnings will also be a focus Friday with General Electric reporting before the bell. Morgan Stanley, Bank of NY Mellon, Synchrony Financial, Comerica, M&T Bank, SunTrust, Huntington Bancshares, Kansas City Southern and Textron are also reporting.
Data includes housing starts at 8:30 a.m. ET, and consumer sentiment, at 9:55 a.m.