Treasuries continued to dictate the tone of stock market trading with an upside bent on Wednesday. The

S&P 500

once again recovered from a breach of closely watched technical levels, but many believe downside risk remains acute and the final hour was once again unkind to shares.

Following a successful five-year note auction, Treasuries rallied across the board, with the benchmark 10-year note rising 1 1/32 to 95, its yield falling to 4.26%.

After an early decline, stock proxies followed suit, as has been the trend of late. But major averages gave back the bulk of their afternoon advance, repeating another recent trend that should be unsettling to those who believe the smart money is most active in the final hour.

After trading as low as 8997.11 around 10:30 a.m. EDT, the

Dow Jones Industrial Average

rallied steadily to trade as high as 9134.57 before faltering in the final hour. The Dow ended up 0.3% to 9061.74.

Following similar patterns, the S&P 500 ended up 0.2% to 967.08 after trading as high as 975.74 and as low as 960.84, while the

Nasdaq Composite

finished down 1.2% to 1652.70 vs. its apex of 1675.50 and nadir of 1648.50.

The Comp was restrained by weakness in

Cisco

(CSCO) - Get Report

, as traders took a detrimental view of its earnings and outlook. There was renewed weakness in biotech as well, following lowered guidance by

Icos

(ICOS)

. The Amex Biotech Index shed 1.7%.

Other recent momentum favorites, including foreign Internet names such as

Chinadotcom

(CHINA)

, were also notable laggards.

Restrained by weakness in

Brinker International

(EAT) - Get Report

and

Aetna

(AET)

, the S&P continued to flirt with levels deemed critical by followers of technical analysis. The index rebounded after trading below both the 965 level discussed

TheStreet Recommends

here and its July low of 962.13. However, the index failed to sustain its intraday move above 975, another key support level.

"Even though the market reversed and everyone feels good, you saw technical damage," said Kevin Depew, technical analyst at Dorsey Wright & Associates. "A clean break at 960 would confirm the short-term S&P chart that's broken down but

absolute levels are less important because trends are being taken out."

From that perspective, he noted that leadership names such as

IBM

(IBM) - Get Report

, along with Internet and homebuilding shares, had already broken their respective uptrends prior to Wednesday. The Comp did as much Tuesday and closed below its 50-day moving average of 1671 Wednesday, confirming prior moves of the same ilk by the S&P and Dow.

At 1.5 billion on the

Big Board

and nearly 1.9 billion over the counter, volume was up from recent levels. New 52-week lows again led new highs (by 47 to 32) on the Big Board, where breadth was essentially even. New highs led new lows 75 to 13 in Nasdaq trading, but decliners led advancers 19 to 11.

Rising Concern About Lower Prices

"Topping is a process," Depew continued. "We're seeing more and more leaders begin to fade and give sell signals. Indicators have broken short-term trends and now are working on long-term trends."

Despite its (aborted) comeback from the early technical breach, the S&P's initial decline may have been enough to turn the intermediate-term indicators favored by Dorsey Wright negative, Depew said. If that proves to be the case (and it couldn't be determined by deadline) that would leave the New York Stock Exchange bullish percentage as the only major positive indicator followed by the firm. (Bullish percentage figures are calculated by dividing the number of stocks trading on new point-and-figure buy signals by the total listed on either exchange. Point-and-figure charts are pure price charts that plot supply and demand without factoring in time or volume.)

That the NYSE bullish percentage is a long-term indicator and, at around 75%, is still a ways from the bearish level of under 70%, should bring some comfort to those with a longer-term horizon. The trouble is that so many market participants are short-term oriented and the near-term outlook has turned negative, which could ultimately lead to trouble for the market's intermediate- and long-term outlooks as well.

"In general, the market hasn't progressed in nine weeks," and ended Wednesday at the same level as on June 2, observed Rick Bensignor, chief technical strategist at Morgan Stanley. "A ton of buying has occurred with no progress in price. That has to make you concerned."

Individuals put $43 billion into U.S. equity funds in the second quarter and another $13 billion to $15 billion in July, according to TrimTabs.com. Since June 2, there's also purportedly been big inflows of money into stocks from pension funds, including those of the state of Illinois and

General Motors

(GM) - Get Report

. TrimTabs estimates $350 billion has gone into the stock markets since May 30.

Given the S&P has effectively gone nowhere despite all that buying power, "somebody is being smart and doing the selling," Bensignor concluded. "There's a lot of distribution going on."

Sellers include corporate insiders and companies themselves, according to TrimTabs. New corporate equity offerings hit $8.4 billion in the week ended July 31, the largest total since early June, while convertible offerings were $5.9 billion, according to the Santa Rosa, Calif.-based liquidity tracker.

"In other words, with the resumption of mega converts and insider sales now that earnings reporting season is

effectively over, corporate selling is again huge," wrote TrimTabs President Charles Biderman.

On Monday, Biderman declared himself to be "cautiously bearish," which pretty much summed up Bensignor's view as well.

"I would think we're not done going down," the technician said. "That doesn't mean we're going to 925 but I don't think you'll make much

short-term money

buying at 960."

Bensignor did note that the market has rewarded patience in the past year, repeatedly giving buyers opportunities to buy and short-sellers opportunities to cover at attractive levels. The question, of course, is whether traders will be able to demonstrate the virtue of patience in the current environment.

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.