"It kind of felt like we had a decoupling. There was more focus on U.S. data" earlier, said Art Hogan, director of global equity product at Jefferies. But then a Financial Times story that said China is reviewing its euro zone bond holdings crossed news wires, and sparked a fresh move lower in the euro.
"We had a disappointing selloff in the last half hour on this story—that really looks like dog bites man. It is unfortunate, but I don't think it changes the fact that we can decouple on our focus on the euro and shift to things that are more fundamental," Hogan said.
A test of that thesis will come early Thursday, when weekly jobless claims and another look at first quarter GDP are reported at 8:30am ET. Wednesday's data included durable goods, which rose a better-than-expected 2.9 percent and resulted in some economists raising first-quarter GDP estimates.
The Dow ended the day down 69 at 9974, while the S&P 500 finished off 6 at 1067.
Paul LaRosa, chief market technician at Maxim Group, said in an interview just before Wednesday's selloff that he was skeptical of the market's ability to hold its gains.
"I think it's the eye of the storm," he said. "I've cautioned all year that the underlying market, the breadth of the market has started their own bear market early in the year and a lot of times it's not reflected in the indices. What really concerns me is the new low list expanded dramatically for the last four or five sessions."
LaRosa said if the S&P breaks down through 1044 again, it could go to around 925.
"We're cautioning people that this is to be taken seriously, and I think rallies into (Dow) 10,500 are opportunities to lighten up on longs and be strategically short," he said.
Brown Brothers Harriman chief currency strategist Marc Chandler said he was skeptical of the FT story about China reviewing its euro zone holdings, and thinks that the euro may have weakened anyway.
"I am a little bit dubious. The Chinese do not leak this. This is revealing a state secret," he said. The story said China holds 630 billion euros in euro zone bonds in its reserves, and Chandler said that number would be considered a state secret.
What Else to Watch
There is also an auction of $31 billion in 7-year notes at 1pm ET Thursday.
Investors will also be watching BP's efforts to cap the oil leak in the Gulf of Mexico. There are four separate House hearings related to the oil spill Thursday.
At 10am, the National Oceanic and Atmospheric Administration will release its hurricane forecast.
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