Bullish traders spooked by volatile markets; nonfarm payrolls in focus

Stocks are scratching around for an excuse to move higher, but bears may keep the pressure on ahead of Friday's jobs report.

Worries about global growth, North Korea's bomb test and another steep slide in oil combined to crush stocks, as traders also worried U.S. economic data was a bit too squishy for corporate earnings to improve.

The S&P 500 fell 26 points to 1,990, and is now down 2.6 percent for the year to date. But that's better than the near-2.9 percent decline in the first three days of last year. The difference this year, however, is that the Fed has already begun a rate hiking cycle and earnings are in decline. The global economy, particularly the headlines from China, continue to spook markets, and there are fears about devaluation of the Chinese currency. Oil also has become a pain trade, with an elusive market bottom.

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West Texas Intermediate crude was down more than 5 percent to $33.97 per barrel Wednesday, its lowest level since December 2008.

"Three days into the new year and things don't feel good. The market still feels heavy here but we haven't seen panic yet. Markets are definitely in some oversold state," said Scott Redler, partner with T3Live. com. "It doesn't feel like a meaningful rally from these levels is around the corner."

On deck for Thursday is weekly jobless claims, and then Friday's December employment report is the big headline markets are anticipating. Economists expect 200,000 nonfarm payrolls, and an unemployment rate of 5 percent.

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"I have a feeling tomorrow is going to be an up day," said Redler, who follows the market's short-term technicals. But he expects to see more downward pressure before the sell-off is over.

"Today I said there's a 75 percent chance that we test 1,840, the 2015 low," he said. "At this point, whenever the market is down four days in a row, it's hard to short. But traders are looking more to short rallies than to buy dips."

James Pauslen, chief investment strategist at Wells Capital Management, said the market was still overvalued, based on earnings expectations.

"We could do it quick. If the (S&P) went to 1800, you could be there, or we could just do it by sitting flat and letting earnings come up for the year. I don't know if we're going to go all the way down, but it certainly feels like the market's going to test those August lows," he said.

There are a few earnings Thursday, including Walgreens Boots Alliance, Constellation Brands and KB Home before the bell. Ruby Tuesday, Bed Bath and Beyond and Barracuda Networks report after the close.

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