All of the big events of the week fall on Thursday. Former FBI director James Comey testifies before a Senate panel on the investigation into President Donald Trump's campaign and its potential ties to Russia. It's also the day that the European Central Bank meets, and British voters go to the polls in a parliamentary election.
Stocks closed lower Tuesday, and some late-day action could be a factor for Wednesday's trading. Tech favorites Amazon.com, Facebook and Alphabet all weakened in the final hour of trading. "We'll see if that leads to further weakness," said Scott Redler, partner with T3live.com, who follows the markets' technicals.
Amazon, Alphabet and Facebook are all part of the FANG group of tech stocks that have outperformed the market. Netflix, also a member, also traded off in the final hour but closed slightly higher.
Redler said he was also watching the 2423 level on the S&P 500, the eight-day moving average. "If it holds 2423, the eight day, 'buy the dip' could still be in tact," he said. Investors buying the dip, or any market decline, has kept stocks from having a serious correction. Redler said if it doesn't hold, the S&P could test 2400.
Meanwhile, traders have been watching the Treasury market, where yields at the long end of the market continued to tick lower Tuesday.
"We're just kind of focused on the technicals," said Aaron Kohli, director of fixed income strategy at BMO. He said there is not much that would affect fundamentals Wednesday, with just consumer credit reported at 3 p.m. ET.
"I think what you're going to see is the market will be very cautious until a lot of the headline risk is absorbed or at least known," he said. The 10-year Treasury yield, which moves opposite prices, was at 2.145 late Tuesday. Kohli said it could go to 2.11 percent, but a major target to the downside would be 2.06 percent. As the 10-year yield has slipped, the 2-year yield is holding its ground at 1.29 percent, so the spread between the two is "flattening."
A flattening yield curve is sometimes a sign of a softening economy or a sign that the market thinks the Fed is moving too quickly, based on the economy's strength. The 2-year is most reflective of the Fed's interest rate policy.
Ari Wald, technical strategist at Oppenheimer, said in a note Tuesday that the decline in yields has been impacting stock sectors. He said utilities and the financials are the best example of interest rates driving rotation. Utilities have been outperforming as rates moved lower but are likely to continue to rally as a trade, he said. Financials move lower as yields decline.
"We're hesitant to call it more than a summer rental given our view that the 10-year Treasury yield should swing higher later this year. We also continue to recommend patience with financials...due to weakness in the sector's relative trend," Wald wrote. He said the downturn in interest rates also helped low-volatility stocks because of their "bond-like" characteristics.
The oil market Wednesday could also be volatile. The Energy Information Administration releases inventory data for oil and refined products at 10:30 a.m. ET.
West Texas Intermediate futures settled up 1.7 percent at $48.19 per barrel Tuesday, but slid in late trading after API reported a large build of 4 million barrels in gasoline supply. Oil supply fell by 4.6 million barrels but the increase in gasoline was seen as bearish for oil prices. Traders will be watching to see if EIA data shows the same trend.
In the oil market, a key psychological level traders are watching is $47 on WTI. Holding that level is important, and the settle above $48 was a positive for stocks in mid afternoon trading.
"Oil has been a distraction," said Redler. He said stocks have been holding up even with the recent sell-off in oil but the XLE energy ETF shows signs of technical weakness.
Markets have been glued to headlines about Comey's testimony, and the same is expected Wednesday.
There has been speculation the ECB this week could hint at the timing of when it could back away from its easing program, which could impact the euro and bond yields. Thursday's U.K. election could also be a big deal for markets. Prime Minister Theresa May called the British election in an effort to show a clear mandate for her Brexit negotiations, but the Labour Party has done better than expected in polls, so the election could be closer than expected.
"Comey will be the big thing in the U.S., but you also have [ECB President Mario] Draghi. Europe to its credit has been one of the few areas that's stabilized growth," said Kohli. He said U.S. rates have been supported by European sovereign rates.