At midday, there is an uneasy stability in the market. Yes, the market is down, but it's well off the lows. High P/E tech stocks are still in the red and low P/E value stocks are generally green. The mood is not one of panic.

There are so many crosscurrents at play today that need to be identified before we can begin to understand how to navigate the market in the days ahead. Let's take them one at a time.

Start with

Intel

(INTC) - Get Report

. By midday, investors had traded

210 million shares

! The stock's normal daily volume is about 50 million. We may be looking at a 300-million-share day on Intel. The stock is trading around $49 per share, up from the low of the day, $46. The slight rally here on this kind of volume means clearly that a lot of brave souls -- not simply shorts -- are buying this dip.

Regardless, the stock still looks pretty busted. Intel has gapped down three times this month including this week. When you see a series a gaps like this in a stock and they are not being closed, you may have a broken stock. Can it come back? Of course. Soon? That's the question.

Looking at other chipmakers is not an especially pretty site either. The

Philadelphia Stock Exchange Semiconductor Index

, known as the SOX, is down about 10% since the Intel news. In fact, the chart of

Micron Technology

(MU) - Get Report

so far this month looks only marginally worse than Intel's. The entire sector looks beaten up and not ready for prime time. The only chip companies you may want to own near-term are potato chip companies. (For example,

PepsiCo

(PEP) - Get Report

, maker of

Frito-Lay

, is up 5% today!)

In contrast to the SOX, the

American Stock Exchange Pharmaceutical Index

is having a pretty nice day. These defensive stocks are simply cheaper on a P/E basis than the semis, and their growth rates look as good or better in the current uncertain market for chips.

Merck

(MRK) - Get Report

, for instance, sports an 18% three-year average annual revenue growth rate, which is better than Intel's. Meanwhile, it's P/E is roughly 40% lower. That discounts a fair amount of anti-drug-company speeches by Vice President Gore.

The second major current today is the dollar. The U.S.-backed central bank intervention to support the euro took currency traders by surprise and all currencies, with the exception of the yen, rallied. This has buoyed sentiment in the stock market if only because it seems to have allayed fears that the euro was slip-sliding away and with it the earnings of U.S. companies with big overseas operations or export markets.

But the intervention does not appear to signal a sea change in the U.S. government's strong dollar policy set by former

Treasury

Secretary Robert Rubin. That point was made late this morning by Rubin's successor, Larry Summers in a press conference.

The third force pushing the market this way and that is its sheer psychology.

There is a lot of pessimism out there, obviously. But there is no reason it could not go to more extreme levels. Noted market analyst Ned Davis of

Ned Davis Research

makes this point in a "hotline" note to his institutional clients today.

Says Davis, "When stocks are priced for perfection, like the

Nasdaq has been for over a year now, it does not take much bad news to set off a panic. And so it is likely that the September correction could get a good bit nastier before it is over. It is true, as I noted on Wednesday, that the NDR Crowd Sentiment Poll was in the healthy process of correcting the extreme optimism seen on September 1, and the poll will almost certainly now move into the extreme pessimism zone, but our rule with sentiment indicators is to 'go with the flow until it reaches an extreme and then begins to reverse. It is at that point that it pays to go contrary to the crowd,' and we are not at that point yet."

Davis looks for a rally down the road. His logic? By the time we get past earnings season, most all of the bad news will be in stock prices and then the market can rally into the elections.

He says, "My overall stance has been one of cautious optimism with the caution mostly directed at September and then looking for a rally. In an election year in particular this is a good bet because you can be certain the people in power are going to do everything they can to get reelected. This is why the market has almost never had a major decline prior to an election. And with the Technology stock questions along with worries about the Euro and oil prices, I would anticipate lots of moves soon to at least make things look better into the election. Thus I am not changing my cautiously optimistic scenario."

Is this necessarily good news for the Intels of the world? Not necessarily, according to Davis.

He writes, "As for market leadership, the Techs may yet shape up to have a Fall rally once the current panic is over (probably closer to month-end), but much of the growth stock money is likely to continue to move toward Health Care which may be a lot more defensive. As can be seen to the right, the NDR Health Care sector has held up very nicely during the September correction. This has been one of my favorites and it remains so. In conclusion, the September decline continues but pessimism is surging and that could lead to a bottom soon. Wait on improvement from the Super-10. Any 'jump the gun' buying on today¿s weakness should concentrate on Health Care in the growth area and Non-Bank Financials and Defense/Aerospace in the value groups."