The audible gasp heard from Wall Street as early gains faded today turned into a sigh of relief as shares rallied steadily after about 12:30 p.m. EDT. Major averages finished with a flourish and closed with solid gains.

The

Dow Jones Industrial Average

rose 1.4% to 8425.12 after having traded as low as 8,280.40. The

S&P 500

gained 1.75% to 893.40 vs. its intraday low of 875.76, while the

Nasdaq Composite

rose 2.3% to 1292.31 vs. its nadir of 1,261.00.

Positive fundamental catalysts for the move included strong August auto sales and a stronger-than-expected construction spending report for July. Construction spending was unchanged vs. expectations for a 0.4% decline, while June's decline was revised to 1.7% from 2.2% originally. Also,

Texas Instruments

(TXN) - Get Report

and

LSI Logic

(LSI) - Get Report

separately reiterated their earnings guidance, while homebuilder

Hovnanian Enterprises

(HOV) - Get Report

posted much better than expected third-quarter results and raised guidance going forward.

Furthermore,

Merrill Lynch

(MER)

shares rose 4.4% despite its lowering of revenue guidance and UBS Warburg's denial of reports it is considering buying the American retail brokerage giant. The Amex Broker/Dealer Index rose 4.5% while the Philadelphia Stock Exchange/KBW Bank Index gained 1.8%.

In rallying, stocks overcame another overnight decline and new 19-year low for Japan's Nikkei 225 as well as a 1.7% rise in crude prices after President Bush intensified his efforts to win support for military action against Iraq. Other negatives included estimate cuts by Credit Suisse First Boston and Merrill Lynch on

Intel

(INTC) - Get Report

, which arguably embodied the day's session.

SOX Around the Ankles

After having traded as low as $15.58, a 52-week low, Intel recovered to close up 1.8% to $16.11. Similarly, the Philadelphia Stock Exchange Semiconductor Index closed up 1.9% to 290.27 after having traded as low as 276.36.

As with Intel, the SOX's intraday low was of the 52-week variety, breaching its Aug. 5 nadir of 282.80. Given semiconductors are considered a leading indicator for the tech sector and the SOX a barometer of the chip industry, the breach of those August lows is quite significant, arguably more so than its midday recovery.

Back in

late June, we examined how major averages were making a series of lower lows amid a seemingly inevitable trek toward the September lows. "Thus, it seems likely the S&P will soon follow the Comp's lead and breach its September lows, just as the Comp followed the lead of the Nasdaq 100, Amex Biotech Index and other indices which had violated September lows in previous weeks," I wrote at the time.

Today's action in the SOX could be a similar portent to major averages revisiting their July lows.

I mentioned this today despite the recovery from

yesterday's shellacking and the ongoing debate about the fundamental outlook. That aside, a growing body of technical evidence suggests major averages will soon follow the SOX's lead and break their late July lows. The real debate seems to be whether it will be of the marginal-intraday type variety, as with the SOX today, or something more nefarious.

How Low Can You Go?

In addition to seasonal factors and the midterm election cycles working against the market, there's also the issue of the four-year cycle, "which is scheduled to bottom again this fall," according to Steve Hochberg, chief market analyst at Elliott Wave International in Atlanta. "Over the past 40 years, every four years the market makes a significant low, most often in the fall."

Indeed, the market hit important bottoms in September/October 1998, November 1994, October 1990, September 1986 (the 1987 crash being part of a different cycle), August 1982, March 1978, October/December 1974, May 1970, October 1966, and October 1962, he recalled.

As the list notes, there have been exceptions to the fall-low rule, and some cycle watchers believe the July lows qualified. Hochberg agreed that is "possible based on oversold measures" in July, but adamantly stated there is "no way that

July was the bottom" when the four-year cycle is overlaid with Elliott Wave patterns.

"Elliott Wave is saying the four-year cycle low lies ahead, my guess is sometime in October" or possibly November, he said. "If true, September has the potential to be horrendous."

Despite all the hand-wringing, Hochberg contends the consensus view on Wall Street is that the July lows might be retested, at worst. "I'm saying we're going to break July lows in a concerted and pointed way," he said, suggesting Dow 6000 is a possibility. "There'll be no doubt we break those

July lows, and that's when panic enters which is necessary for an intermediate-term low."

In pressing this extremely bearish argument, Hochberg mentioned the work of Paul Desmond, president of Lowry's Reports, who won the 2002 Charles Dow Award for his research on the significance of 90% downside volume and price action.

Yesterday qualified as one of those so-called 90% downside days, Desmond reported in an email note to Lowry's clients. In an interview today, he stressed that "important market declines typically end with a series of 90% downside days, followed by a 90% upside day." (Today, upside volume was 75% of the 1.34 billion shares traded on the

Big Board

and 78.5% of the 1.3 billion shares exchanged over the counter.)

The key is that a series of 90% downside days are typical at major market bottoms. As reported here on

Aug. 6, the average over the past 70 years is five 90% downside days, while 14 occurred before the market finally bottomed in 1974. The last one before Tuesday was on April 3, 2001, Lowry said last month.

"Once they start occurring, get to the sidelines and protect yourself until you see a series of 90% downside days followed by a 90% upside day," Desmond said. "We're probably some ways off from a real bottom

and are going to have to go through this process again of having multiple 90% downside days

until prices get down to a point where perhaps investors get really enthusiastic."

Desmond compared the first 90% downside day to a sale that doesn't attract quite enough customers. So the store keeps holding sales at ever-deeper discounts, until "they get prices down to where buyers come marching in," he said. "It rarely

occurs after just one 90% downside day."

Buyers did come marching in today and stocks have in recent years mounted some rallies that are short and sharp. Unsustainable bear market rallies, that is.

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

Aaron L. Task.