After a quiet bloodletting to start the week, major stock proxies enjoyed something of a reprieve Tuesday in an orderly retreat that focused attention on the significance of Monday's sharp fall.

Amid falling crude prices, ongoing diplomatic wrangling over a second U.N. resolution and more company-specific concerns, major averages ended down slightly.


Dow Jones Industrial Average

closed down 0.6% to 7524.06 after trading as high as 7642.41. The

S&P 500

finished lower by 0.8% to 800.73 vs. its intraday high of 814.23, while the

Nasdaq Composite

finished down 0.5% to 1271.47 vs. its best of 1288.99.

Stocks' weakness notwithstanding, U.S. Treasuries were unable to extend their recent rally. The price of the benchmark 10-year note fell 6/32 to 102 14/32, its yield rising to 3.58%.

Early on, shares rose as Saudi Arabia pledged to make up any shortfall in crude supplies due to any war in the Middle East. "We will make sure the market has enough oil," said Saudi Oil Minister Ali al-Naimi, according to wire service reports. We will not allow a shortage to emerge."

Crude futures fell 1.5% to $36.72 in reaction, even though OPEC said it would not raise production quotas at its meeting in Vienna.

Early in the session, falling oil prices, an unexpected 0.2% drop in wholesale inventories, and fleeting hopes for a diplomatic solution to the impasse within the U.N. Security Council helped propel a technically oversold bounce. But stock proxies began to sink midmorning when Cameroon's U.N. ambassador said the six undecided Security Council members have proposed a 45-day deadline for Baghdad to disarm.

The weight of negative corporate news helped cement another ultimately negative session for shares.

There was widespread concern about the airline industry after the Air Transportation Association estimated that an Iraqi war combined with another terrorist attack could cause

$13 billion in losses -- in addition to the $6 billion already forecast for 2003 -- potentially triggering a collapse in the industry.

In addition,

Delta Air

(DAL) - Get Report

lowered its guidance for cash flow this quarter, and its shares fell 22%. The Amex Airline Index shed 10%.


King Pharmaceuticals


fell 23.5% on news of an investigation by the

Securities and Exchange Commission

. The Amex Pharmaceutical Index fell 1.1%.

A profit warning by



, down 15.9%, revived concerns about consumer spending. Meanwhile


(UNM) - Get Report

lost another 25.4% in a second session of heavy losses stemming from concerns about its bond portfolio and a Moody's downgrade.

Finally, there continue to be concerns about the health of the nation's financial firms, with the Philadelphia Stock Exchange/KBW Bank Index falling another 1.6%.

Don't Stop Thinking About Yesterday

Trading volume was up from Monday but still uninspiring, with 1.4 billion shares exchanged on the

Big Board

and just more than 1 billion traded over the counter. The relatively quiet session and minor moves for major averages helped maintain a focus on the significance (or lack thereof) of Monday's session.

Lowry's Reports confirmed Monday was a 90% downside day, characterized by 90% downside volume and 90% downside price action,


reported. As discussed

here, Lowry's Paul Desmond also told the financial news network that Monday's 90% downside session was the first in recent memory, and past significant bottoms have been characterized by a


of such sessions.

In other words, Monday may have marked the beginning of capitulation-type selling, but there's greater risk of more such sessions before any lasting bottom emerges.

On a separate-but-related note, there also was a lot of chatter about Monday's extraordinarily high reading for the one-day Arms Index. Monday's close of 5.79 for the index implied declining stocks received six times the volume of advancing issues, noted Jeff deGraaf, senior technical analyst at Lehman Brothers.

Normally, such readings are "a characteristic of climactic or washout selling," deGraaf commented. "But volume on the

Big Board was 7% below average. That suggests to us a market undergoing orderly liquidation, not panic selling."

Even bulls such as Don Hays of Hays Advisory Group (remember him?), conceded the lackluster overall volume was a mitigating factor to the spike in the Arms Index, which fell 69% to 1.78 Tuesday.

Historically, extreme readings in the Arms Index "have always described important 'give-up' points, thus creating a major buying opportunity," Hays commented Tuesday. "But in all those previous times, this extreme number was also accompanied by huge volume, and

Monday's volume was paltry at best."

Longtime readers will recall Hays was once a featured "guru" in this column, but his perennial bullishness damaged his credibility with readers. While conceding his patience is "very much exhausted," the veteran market watcher was true to recent form in citing some positive aspects of Monday's session. He noted the 15 most active stocks on the New York Stock Exchange were down, "usually a factor that only occurs close to at least a short-term bottom."

In addition, Hays observed major averages remain above their October lows and -- save the Dow and Dow Transports -- above their July lows, as well. In addition, there were 249 stocks making new lows on the Big Board Monday vs. 604 on Oct. 9 and 917 on July 23.

Similarly, 109 over-the-counter names hit new lows Monday vs. 479 on Oct. 9 and 737 in July. ('s

Helene Meisler also noted these figures, calling the decline in new lows a "positive divergence.")

One sign that selling pressure has been fulfilled in some sectors (maybe) was the 1.8% gain by


(NOK) - Get Report

, despite its warning.

Certainly there's no shortage of people trying to call a "bottom" for shares. In addition to Hays, Morgan Stanley's Barton Biggs was another repeat offender making the rounds on Tuesday. Meanwhile, I heard that one well-known market timer, heretofore bearish since March 2000, made a very optimistic asset allocation switch on Monday. If I'm able to confirm this, I'll report the name and details here in the coming days.

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.