Read More Markets fear more to China's move
"Facebook still looks OK, Amazon and Google are in the game. There's not that many names that look constructive for the move higher," said Scott Redler, partner with T3Live.com. He said many other momentum names are in broken trends, and leadership groups are getting harder to find. "The banks were a leadership group and now are just kind of in line or weaker…. In the last three or four weeks, a lot of leadership groups lost momentum. When you have less leadership, it's hard for the market to stay elevated."
The S&P 500 lost 20 points Tuesday to 2,084, and the Dow was down 212 at 17,402.
Wednesday's data includes JOLTs, the job openings and turnover data at 10 a.m. ET, and markets will also be watching the 10:30 a.m. ET government oil inventory data after a more than 4 percent decline in U.S. crude futures Tuesday. There are also a few before-the-bell earnings including Alibaba and Macy's. Cisco and News Corp. report after the close.
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Of note will be a speech from New York Fed President William Dudley at 8:30 a.m. ET. While his topic does not appear to focus on monetary policy, traders are watching for any off-the-cuff comments in response to questions, after his talk on workforce development in Rochester, N.Y.
Some analysts say that the markets overreacted to China's devaluation of the yuan by just about 2 percent, but there are underlying concerns that the Chinese economy is much weaker than it appears.
"I really think by itself the very, very infinitesimally small devaluation by China is hardly on the radar screen if you look at a chart. It's not real meaningful in its own right but it comes at a time when there's so much emotionalism in the market," said James Paulsen, chief investment strategist at Wells Capital Markets. Paulsen said the collapse of the Shanghai market set up a feeling of squeamishness among investors about any negative Chinese news.
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China announced the surprise devaluation after its July exports dropped 8.3 percent. Paulsen said the actions by China look desperate to investors.
"Not only do they have to resort to controls on sellers, but they come out and do a devaluation for the first time in 20 years. It almost feels like they're plummeting economically. I don't think they are. There's not much data to suggest that…. I think it's more overdone," said Paulsen.
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Paulsen said the continued selling in commodities appears to be part of a bottoming process. "This is more a dollar story than a supply and demand story. The other thing that's going on is the DXY (dollar index) has not gone to new highs," Paulsen said. "To me if the dollar doesn't go to new highs, I'm not sure commodities are going to keep making big new lows."
After the devaluation, speculation circulated that it would keep the Fed from raising rates in September, and futures markets priced in greater odds for a December rate hike. But a number of economists stuck to their view that September is more likely, including J.P. Morgan chief U.S. economist Michael Feroli, who said it was a "minor headwind to growth."