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Market Preview: Waiting for the Break

Stocks in this article: MSFT CMG SPY ^DJI ^IXIC ^GSPC

Updated from 5:55 p.m. ET to include after-hours action.

NEW YORK ( TheStreet) -- Another round of quantitative easing from the Federal Reserve may not be off the table completely but the second-quarter timeframe that many market watchers were predicting at the start of the year doesn't seem realistic anymore.

Paul Ashworth, an analyst at Capital Economics, broke down the situation in commentary on Wednesday, saying the economic data just isn't supportive of the central bank signing up for more bond buying when Operation Twist conks out at the end of June.

"We wouldn't rule out a third round of asset purchases at some point, possibly focused on mortgage-backed securities, but an announcement at one of the next few FOMC meetings now looks quite unlikely," he wrote. "More quantitative easing is a harder sell when inflation remains above the Fed's 2% target and the unemployment rate continues to decline at a faster pace than the FOMC Federal Open Market Committee or most other economists anticipated."

Ashworth had a few predictions for next week's two-day FOMC meeting, saying officials are likely to make a "modest downward revision" to their year-end forecast for the unemployment rate because the current view for a range of 8.2-8.5% in the final quarter of 2012 may "look a little pessimistic" given the rate is already at 2%.

Other than that, the central bank is engaged in a waiting game, the analyst said.

"Overall, there is little reason for the FOMC to take a step in either direction at this meeting," he wrote. "The Fed's best option is to stay on the sidelines waiting to see which way the recovery breaks."

All in all, Wednesday's weakness was pretty pedestrian but Spain's next auction of 10-year bonds on Thursday could bring the volatility back post-haste if it doesn't go well.

Ed Yardeni, chief investment strategist at Yardeni Research, said Wednesday that the markets may soon be looking to the European Central Bank to step in that the impact of the eurozone's long-term refinancing operation, or LTRO, is starting to wane.

"The ECB's LTRO, in effect, has been quantitative easing," Yardeni said. "However, rather than loading up on PIIGS Portugal, Italy, Ireland, Greece and Spain bonds directly, the ECB has provided cheap three-year money to PIIGS banks backed by their dodgy collateral and encouraged them to load up on the dodgy bonds of their governments. This 'Operation Twisted' did lower yields in Spain and Italy earlier this year. However, the ECB may have to do more if bond auctions don't go well for Spain and Italy because the banks have spent all their LTRO money on carry trades, while other bond investors remain on strike."

One signal that the rally in U.S. stocks may be close to running its course, at least in the near-term, is that retail investors slowed outflows from mutual funds investing in U.S. equities last week, pulling out $1.53 billion for the week ended April 11, down from $4.5 billion the previous week.

That's not the same as jumping in with both feet but it's worth noting. Conventional market wisdom is that Mom and Pop embracing stocks is a contrarian indicator.

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