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This is the pied piper for stocks

Oil and the dollar could be keys to Thursday's trading, after the dynamic duo sent markets on a wild ride Wednesday.

Falling crude prices and the rising dollar have been poison to the stock market with both sapping corporate profits. But on Wednesday, stocks moved higher as oil surged, while the dollar slumped amid speculation the Fed would hold off on further rate hikes.

"We're all watching each other. I hate these kinds of markets when you're watching another market to determine what to do," said Arthur Bass, managing director at COEX Partners. "I hate these kinds of markets. You get them periodically, and at some point they'll decouple."

The dollar index fell 1.6 percent and the euro surged above $1.11, and the yen also rallied.

"We had the ECB (European Central Bank) surprise and the BOJ (Bank of Japan) surprise and both the euro and yen are stronger than they were before that. So it wore off. But the other side of the coin is people are really pushing out the Fed right now. The futures say less than one hike this year," said Win Thin, senior currency strategist at Brown Brothers Harriman.

"We know the March meeting is unlikely. ... Are we ready to throw in the towel on the higher dollar? No, because we know this correction will go on for a while."

West Texas Intermediate crude futures gained 8 percent to $32.28 per barrel, lifted by the sinking dollar and in part by speculation that OPEC and non-OPEC countries would meet. Analysts were doubtful of the reports, which first quoted Ecuador on an emergency OPEC meeting and then Venezuela on a meeting of the cartel and others.

Citigroup analysts said they don't believe the speculation about a meeting between Russia and OPEC, but they do believe it's likely that oil prices may have hit their lows. "I think the key message we're trying to say here is it is still likely it's going to zigzag around," said Eric Lee, Citigroup analyst.

He said oil could trade lower than current levels but he believes it's likely to hold in a new range with a floor of around $27 per barrel for Brent and $26 for WTI.

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"We're close to a floor," said Lee, noting it now depends on how much pain producers can take. "At the same time financial market positioning was very, very short, very stretched when we got down to $27. We see, as these shorts cover, we pull back to these levels," he said. "Positioning seems to suggest these levels are a little more neutral."

Lee said the range for WTI could be between the $26 low and the mid-to-upper $30s per barrel. By the second half of the year, oil could then start to turn higher, depending on the amount of production cut from the U.S. That will also be determined by how many companies need to file bankruptcy in the oil industry and whether bank financing is pulled back when oil companies are reviewed in the spring.

The correlation between oil and equities could also be impacted if the price does steady in a range. Lee said oil is finding a range, and Citi analysts say stocks then also could be finding one. "If they're both stabilizing at lower levels, you may see a breakdown of these correlations going forward, which would be welcome," he said.

Stocks swung back and forth Wednesday, ending with gains in the S&P 500 and Dow, but a 0.3 percent loss in the Nasdaq. The S&P 500 rose 9 points to 1,912. Bonds also traded with big swings. The 10-year yield slipped as low as 1.79 percent, before ending the day at 1.88 percent. The yield moved lower earlier as stocks sold off and investors moved to U.S. Treasurys, in part because of super-low yields elsewhere.

The U.S. two-year slipped to 0.726 percent, an attractive yield compared to its counterparts with negative yields in France, Germany and Japan.

"I think this bond market has been one big flight to quality the entire month, and I mean January. We basically at this point are pricing only about 55 percent chance of one tightening by December now. So we essentially priced out the Fed or a good part of it," said Bass. Central bank speakers will be important after New York Fed President William Dudley's comments Wednesday suggested a more dovish Fed.

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Fed speakers Thursday include Boston Fed President Eric Rosengren, who will be making remarks overnight in South Africa on financial stability. Dallas Fed President Rob Kaplan speaks in Dallas at 8:30 a.m. ET, and Cleveland Fed President Loretta Mester speaks at 5 p.m. on the economy and monetary policy.

Dudley said the financial conditions worsened since the Fed's rate hike in December and the central bank would take that into consideration if it continues. The comments also came as weaker ISM nonmanufacturing question flagged that the services sector was now weakening.

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"Think about Dudley's comments two weeks ago. This was different," Bass said.

Thursday's data include jobless claims and productivity and costs, at 8:30 a.m. ET. Factory orders are reported at 10 a.m. Bass said the market will be watching data, as Fed official stress they are data dependent. But the bond market will also be watching the stock market and that could be more important to near-term pricing than even Friday's jobs report, he said.

Earnings are expected from ConocoPhillips, Occidental Petroleum, Royal Dutch Shell, Statoil and CMS Energy report ahead of the bell. Credit Suisse, AstraZeneca, Marsh & McLennan, Ralph Lauren, Delphi Automotive, Dunkin Brands, OM Asset Management, Virtu Financial, Cummins and Clorox also report in the morning.

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After the bell, LinkedIn, News Corp, Hartford Financial, Elizabeth Arden, Genworth Financial, Lions Gate, Outerwall, Netgear, Tableau Software and Symantec report after the close.

Steve Massocca, managing director of Wedbush Securities, said the environment has become better for stocks, and he expects a rally once oil stabilizes. He said fundamentals of some companies continue to be strong. "I think this is a buying opportunity," he said.

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