Disappointing earnings reports, sliding energy shares, bad inflation news and volatility ahead of Friday's options expiration sent major indices tumbling Thursday, unwinding all of Wednesday's rally and more.

But if the market's flip-flop pattern is to resume Friday, postclose earnings from (most notably) Google ( GOOG) and SanDisk ( SNDK) may be the catalysts for a rebound Friday. The search-engine giant handily beat Wall Street expectations, and its shares were recently up 9.5% in after-hours trading. SanDisk shares were recently up more than 15% after its own upside surprise.

The after-hours action was in sharp contrast to Thursday's regular trading day when the Dow Jones Industrial Average slumped 133.03 points, or 1.28%, to 10,281.10. The blue-chip index was weighed down by a disappointing earnings report from Pfizer ( PFE), which fell 9%, and McDonald's ( MCD), which fell 4%.

A slide in crude oil prices and energy shares also took down Dow component Exxon Mobil ( XOM), which fell 3.5%.

Sliding oil prices slammed energy stocks but eased inflation concerns in the bond market, where the benchmark 10-year Treasury bond finished up 7/32, its yield falling to 4.43%.

The trading session had begun on a downbeat note after disappointing results Wednesday evening from eBay ( EBAY), which fell 6.8%. And there was more bad news before the open after Pfizer, McDonald's and Ford ( F) reported.

The S&P 500 finished down 17.96 points, or 1.50%, at 1177.80. The Nasdaq Composite lost 23.13 points, or 1.11%, to finish at 2068.11.

The downdraft became more pronounced as crude oil prices slid throughout the session, taking with them the energy sector. Crude oil finished at $61.03 per barrel on Nymex, down $1.38 on the day, after briefly trading below $60.

While crude oil finished off lows, the energy sector fell further after the 3 p.m. EDT close of Nymex trading, before getting a modest bounce just before the stock market's 4 p.m. close. The Amex Oil Index slid 4.5% to 912.63 vs. an earlier low of 903 but well off its intraday high of 957.

There were big drops in the likes of Amerada Hess ( AHC), ConocoPhilips ( COP), Marathon Oil ( MRO)and Valero Energy ( VLO), which all lost more than 4%.

The action Thursday -- an early gain followed by a steep afternoon decline -- was almost the exact reversal of Wednesday's session. After Thursday's drop, the S&P is now just a few points below the 1178 level, where it stood at Tuesday's close.

Technical analysts have noted that the indices were again testing the five-month lows seen last week. The tests have produced several bounces -- on Friday, Monday and Wednesday -- but the market is having trouble maintaining an upward momentum.

According to the technical team at Morgan Stanley, the major stock indices failed to really test last week's lows before Wednesday's bounce, and that left room for more downside.

Furthermore, technical analyst Mark Newton notes that "consensus bullish sentiment readings remain near extreme levels, near those typically seen at market tops." The analyst, however, reiterated a call, first reported here on Oct. 11 , for an intermediate bottom to be found around Oct. 20.

For Morgan Stanley chief technical strategist Rick Bensignor, the expiration of options on Friday is clouding the near-term outlook, and "once we get this out of the way, we'll see if buyers want to get in or not."

But if the S&P convincingly breaks below 1173 (it closed at 1178 on Thursday), then a further breakdown is likely, with the next support levels at 1145 and then around 1110 to 1120. But if the 1173 level holds in October and the 1196 level holds in November, Bensignor says, "the bull market should still have some legs."

Marc Pado, the Cantor Fitzgerald analyst who had found comfort in Wednesday's rally, as reported here , says Thursday's action was dispiriting -- but not completely.

"Does Thursday negate the significance of the turn yesterday? Not really, given the large role played here by the energy sector," he says.

Even after falling sharply in the first two weeks of October -- the Amex Oil Index has dropped 15% from Sept. 30 through Thursday's close -- the energy sector still accounts for 9.5% of the total market capitalization of the S&P 500, according to Zacks Investment Research.

At some point, market participants hope that oil falling below $60 per barrel may help lift overall sentiment, given recent inflation concerns.

On the inflation front, the afternoon release of the Philadelphia Fed's survey of regional business activity in October provided little comfort. While the survey rose to a much better-than-expected 17.3, from 2.2 in September, and above market expectations for a rise to 10.0, the prices paid component soared to 67.6, the highest level since 1980. And the prices received index was also up sharply, to 32.6 from 8.6 in September.

To view Gregg Greenberg's video take on today's market, click here .
In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback; click here to send him an email.

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