Earnings Can't Stop a Bumpy Downhill Ride

A trend a trend! My kingdom for a trend!

Methinks your faithful servant (i.e., me) hath used this Shakespearean allusion previously. But the course of the market never did run so unsmoothly as of late, so I've revived it.

Yes, dear reader, after rallying Friday, the major averages slid today, marking the eighth consecutive trading day that broad market averages have reversed the prior trading day's trend.

The

Dow Jones Industrial Average

fell 0.9%, the

S&P 500

shed 0.8%, and the

Nasdaq Composite

lost 0.1%. The Comp posted relative strength thanks to gains in chipmakers and chip-equipment makers, which were aided by positive comments by Robertson Stephens; the SOX rose 2%.

Certainly, the market's daily waffling doesn't change the fact its recent trend has been toward lower prices; only the Dow remains up year to date, and by a scant 0.7%, while today marked the S&P's lowest close since Feb. 22.

Still, the market's consistent inconsistency "is a little unusual," said Bob Basel, director of listed trading at Salomon Smith Barney. "It shows you much indecision is out there."

As discussed Friday, there's a sense many market participants have been awaiting the onset of first-quarter earnings, which began being reported in earnest this week. Basel agreed that may be the case, noting that trading volume continues to be lackluster.

In

New York Stock Exchange

trading, 1.1 billion shares were exchanged vs. an average of more than 1.35 billion in the first quarter. Just 1.2 billion shares traded in over-the-counter activity.

Resolution of the market's trend -- and increased trading activity -- may be forthcoming as more earnings are released. But if "some of these big guys were any indication, overall

earnings season is not going to be too good" for the market, the trader said.

Specifically, he referred to the market's reaction to results from

Citigroup

(C) - Get Report

, which fell 2.5% after reporting disappointing first-quarter results. Citigroup is the parent of Salomon Smith Barney, and Basel (wisely, we suspect) declined to further discuss those results or the market's reaction to them.

The trader also mentioned

General Electric

(GE) - Get Report

, which fell another 5.1% to $31.85 today -- after losing nearly 10% last week -- after a critical article in

The New York Times

on Sunday.

"GE for a lot of years has based their success on the growth rate, but it doesn't look like they'll be able to

continue to do it," Basel observed. "It's important for that stock to hold $30."

Notably, the trader downplayed the effect of today's bombing threat against Washington, D.C.-based banks, which turned out to be a prank perpetrated by a 13-year-old Dutch boy, according to wire reports. Such threats "can't be ignored" in the wake of Sept. 11, but "I wouldn't want to say that rumor was a big contributing factor" to the market's decline, Basel said.

More important was the fact that with earnings being reported, the so-called quiet period is ending for a lot of companies, "so there are probably some questions that are able to be asked about accounting," he said. "It's very much a touchy subject. There's still a little fear -- not that there's another

Enron

-- but that people didn't account for things properly."

Of course, hardcore bears believe this accountability gap is going to weigh on U.S. equities for years to come, and they may very well be right. Basel is certainly no Pollyanna, but, interestingly, he expressed a view similar to that reported

here midday: For all the issues troubling the market, a short-term rally could emerge.

"I think we're at the lower end of our near-term trading range, and it wouldn't totally surprise me if we held here," Basel said. "But fundamentally, I don't like what I'm seeing."

On the technical front, one reason many market watchers are expecting a short-term advance is that the 10-day Arms Index rose above 1.5 during the market's wicked selloff last Thursday. In the past 40 years, the market has consistently bottomed within 20 days of such an occurrence, according to Don Hays of Hays Advisory Group. Hays has

long focused on this indicator, but he is certainly not alone in watching it.

World Gone Mad

Interestingly, while cheering the Arms Index signal on Friday, Hays also waxed effusive about the apparent ouster of Venezuelan President Hugo Chavez. Today the veteran market watcher surmised that Chavez's return "maybe is not as bad an omen as I originally thought." Given Chavez was duly elected, Hays suggested the leader's revival could be a victory for democracy. (Shareholders of

AES

(AES) - Get Report

may feel differently.)

Snickering aside, there may be an upside to Venezuela's wild weekend, according to Binu George, international equity strategist at Barclays Global Investors in San Francisco.

It's too early to tell, but "hopefully

Chavez has taken the right lessons from this near-death experience" of his political life, George said, stressing that Barclays takes an extremely long-term view of investing and hasn't been swayed by recent events in Venezuela. "He's incredibly lucky to get a do-over, and hopefully he'll go back to doing the good that was expected of

Chavez when he came into power" in 1998.

In addition to assuring an uninterrupted flow of oil, Chavez has canceled the appointment of his cronies to the board of Venezuela's state-owned oil company, George noted. Still, crude futures rose 4.7% to $24.57 per barrel today.

Oil markets were also reacting to the latest developments in the Middle East, which today featured promises of a withdrawal and a proposal by Israeli Prime Minister Ariel Sharon for a regional peace conference. Additionally, the State Department announced Secretary of State Powell will meet with Sharon on Tuesday and Palestine's Yassar Arafat on Wednesday.

As with the situation in Venezuela, it's far too soon to draw conclusions, Barclay's George said. But "this is one of the best chances there has been in last few weeks for some sort of settlement to occur," he said. "After the recent violence, people may seize this as a last chance for peace before things degenerate further."

Amen to that.

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.