Wall Street looking for a breather

Stocks could try for a firmer continuation of a relief rally Wednesday.

Despite oil hitting a fresh 12-year low, the major U.S. averages recovered most of their opening gains late in the session Tuesday to end nearly 1 percent higher or more. The Nasdaq composite ended its first eight-day losing streak since 2008.

"That reversal (late Tuesday) probably marks a short-term bottom in the market," said Lance Roberts, chief portfolio strategist at Clarity Financial.

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

He said the S&P 500 could recover the 1,990 level in the near term, and oversold conditions might prevent a sharp sell-off in the near term if news is "moderately bad."

U.S. stocks are down more than 5 percent year to date, while U.S. crude oil has lost more than 15 percent in the seven trading days of the year so far.

Oil and China remain the key drivers — and uncertainties — for the market. Wall Street will again watch for further devaluation in the yuan as well as indications on economic growth from Chinese trade data due overnight.

Read MoreGartman: Oil 'panic' could sink prices to $15

"I think if the (yuan) is weaker tonight and the trade data is weak, then this will impact the Shanghai composite and have some spillover. I think next to China uncertainty, the big issue affecting U.S. markets are low oil prices and high oil volatility," said Clem Miller, portfolio manager at Wilmington Trust Investment Advisors.

Oil plunged Tuesday, with crude giving up initial gains to dip below $30 a barrel in intraday trading before settling above session lows at $30.44 a barrel, down 97 cents. The settle was delayed for more than 30 minutes amid the heavy volatility in crude futures.

Prices could again be volatile around weekly oil inventories, due out at 10:30 a.m. ET on Wednesday.

Read MoreGlobal glut of crude oil is forcing prices to the floor

Also in focus could be developments after Tuesday afternoon's news that Iran was holding 10 U.S. Navy sailors and their two small Navy boats after the vessels had mechanical issues and drifted into Iranian waters. American officials received assurances from Tehran that the crew will be returned safely and promptly, The Associated Press reported.

The Nasdaq composite closed up 1.03 percent Tuesday at 4,685.92. The Dow Jones industrial average added 117.65 points to close at 16,516.22 and the S&P 500 gained 15.01 points to 1,938.68. Information technology led sector advancers, with Apple closing nearly 1.5 percent higher for its first three-day win streak since late November.

Treasury yields fell Tuesday, with the two-year yield hitting its lowest in about a month and the 10-year yield touching its lowest since late October. Traders attributed much of the moves to the risk-off sentiment amid continued concerns about global economic growth.

Read More'Now you know': Why the Fed feared a quarter-point hike

The Treasury is scheduled to hold a 10-year note auction Wednesday afternoon.

The Fed's survey of economic conditions and speakers from the central bank could shed further light on the strength of the U.S. economy and the pace of Fed tightening. Two speakers are scheduled for Wednesday: Boston Fed President Eric Rosengren, a voting member, at 7:45 a.m. and Chicago Fed President Charles Evans at 12:30 p.m. Economic data include the Fed's Beige Book, due at 2 p.m. ET.

According to CME Group's FedWatch tool, markets are now pricing in a 47 percent chance of a hike at the Fed's March meeting and a 67 percent chance of a rise in June.

"I expect the Beige Book will show there's continued strength in the economy. I don't know if that's going to impact markets. It seems they're overshadowed by oil and China," said Bryce Doty, senior fixed income manager at Sit Investment Associates.

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The major U.S. data for the week come Friday, when several reports including retail sales, the producer price index and consumer sentiment are scheduled for release.

Traders will also eye President Barack Obama's final State of the Union address Tuesday night for any indications on issues such as gun control, health coverage and free trade that may affect stocks.

"There always seem to be headlines and someone is always trying to parse what policies (mean for stocks)," said Greg Woodard, portfolio strategist at Manning & Napier.

Supervalu is expected to report before the open Wednesday, with Infosys and Clarcor due after the close. JPMorgan Chase results are scheduled for Thursday before the bell.