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A downdraft in stocks just before Wednesday's close could bring out the bears Thursday morning, when three Dow components and dozens of other companies report earnings.

Three Dow stocks — McDonald's, Caterpillar and 3M — report earnings ahead of the open Thursday, and big tech weighs in after the close, with Google parent Alphabet, and Microsoft.

Technical strategists are watching the 2,020 level on the S&P 500, below which the index fell to close at 2,018, after rising as high as 2,037 Wednesday.

Trader on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters

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"This is where the bears are going to try to exercise their idea. "Two-thousand twenty, the intermediate high between the August and September bottoms," said John Kosar, chief strategist at Asbury Research. Kosar said he's seeing more positives than negative for stocks, but there may be some friction around the current levels.

"Considering where we are and the kind of climate of the market out there, I would probably be more surprised if we just took off like a shot and didn't have at least a little back and forth here," said Kosar, noting the disagreement between investors who see a bear market coming and those who see stocks heading higher.

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"There's enough people on either side that we're going to have a tug of war near term. That was the line of demarcation in the S&P 500. We're sort of overbought near term so that's the logical place, if I was bearish the market, where I would put some shorts on," he said. Kosar said 2,020 is the intermediary high between the Aug. 25 low of 1,867 and the Sept. 29 low of 1,872.

Scott Redler, partner with, follows the market's short-term technicals, and he said the current level may be one where some traders reduce risk. "The rally from 1,880 up towards the 2,040 area was pretty fast and furious … so most traders have been looking for signs of whether it could continue to push into bigger resistance or retrace. Today was probably the first time you take some profits and maybe look for a short signal," he said.

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Kosar said some of the positives he's seeing for the market are lower volatility and better breadth. High-yield spreads have come in by about 70 basis points in recent sessions, he said. Traders watch high-yield activity for signals on credit conditions and risk appetite.

"What I see now are improving conditions. They're not perfect yet, but they are vastly improved from where they were a few weeks ago. Volatility has come in, corporate bond flows have come in, asset flows are a little better, put/call spreads are nowhere near as low as they were a few weeks ago. Sentiment has come off the bottom. Sentiment was very negative at the beginning of September," he said.

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Besides earnings, there are weekly jobless claims at 8:30 a.m. ET, and existing home sales and leading indicators, both at 10 a.m. There is a meeting of the European Central Bank, where it could discuss more quantitative easing.

Earnings are also expected from Union Pacific, Dow Chemical, Eli Lilly, Dr Pepper Snapple, Freeport-McMoRan, Nasdaq OMX, Pulte Group, Southwest Airlines, Under Armour, United Continental, Dunkin Brands, Raytheon, Stanley Black and Decker and Janus, ahead of the opening bell. Afternoon reports are expected from Stryker, AT&T, Pandora, Juniper Networks, Capital One, KLA-Tencor and VeriSign.

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