Market Upholds the Status Quo for Now

Americans have the opportunity -- no, the obligation -- to vote Tuesday in the crucial midterm elections. Wall Street participants get to vote with their pocketbooks every day. Midday Tuesday, their choice was "undecided."

Yes, the

Dow Jones Industrial Average

was up 0.3% as of 1:41 p.m. EST, but broader market averages had been hugging break-even throughout the session, with the

S&P 500

lately down 0.1% and the

Nasdaq Composite

down 1.1%. Meanwhile, market breadth was essentially even, although slightly weighted toward declining stocks, in both

NYSE

and Nasdaq trading while volume was pretty tame.

Monday's volatile session defied such expectations, but the action early Tuesday was the kind of directionless trading many participants expected this week, at least until after Wednesday's

Federal Reserve

meeting.

Last week, many traders were increasing their long positions on the hope of a favorable ruling in

Microsoft's

(MSFT) - Get Report

antitrust case, which arrived Friday afternoon; a Republican sweep in Tuesday's midterm elections and a rate cut by the Fed.

Down to the Wire

Well, the Microsoft news has come and gone, and prospects for a Republican sweep in the election seem less likely. Although multiple races remain too close to call, influential pollster John Zogby has been quoted as saying Democrats will maintain a slim majority in the Senate. Elsewhere, the Iowa Electronic Stock Market is currently pricing in 58% odds that the status quo -- Republican House, Democratic Senate -- will be maintained, up about 15 percentage points from late last week and vs. 31% odds for Republican sweep.

Meanwhile, the fed funds futures are pricing in 100% odds of a rate cut Wednesday, but Steve Beckner, an influential Fed watcher at

Market News

, published a story early Tuesday indicating a 50-basis-point cut is unlikely.

Thus, it appears Wall Street is not going to get all that it apparently wants, meaning a

Republican sweep and a 50- basis-point rate cut. (Notably, the dollar was trading at its lowest level since July 26 vs. the euro, and the Dollar Index was lately down 0.23 to 105.89, as currency traders perceived another rate cut as a sign of ongoing U.S. economic weakness, rather than something to cheer.)

Other issues dampening sentiment include reports in

The Washington Post

that both Iraq and North Korea have supplies of smallpox that could be used in weapons. The report was giving pause to some of Wall Street's prior zeal for war with Iraq.

Outside the geopolitical realm, a profit warning by

Circuit City

(CC) - Get Report

, an announcement of layoffs at

Applied Materials

(AMAT) - Get Report

, and a Federal Trade Commission subpoena against

Tenet Healthcare

(THC) - Get Report

were weighing on those names and related shares.

Then there was the more basic question of whether the rally from the Oct. 9 lows had become overextended. A number of sell-side analysts downgraded stocks Tuesday morning, citing valuation concerns, including

Paychex

(PAYX) - Get Report

,

American Express

(AXP) - Get Report

,

Automatic Data Processing

(ADP) - Get Report

,

Yahoo!

(YHOO)

,

Nextel

(NXTL)

and

Tellabs

(TLAB)

.

Each of those names was down at midday, but that was after posting gains of between 24% and 81% between Oct. 9 and Monday's close.

Similarly, Bear Stearns analyst Andrew Neff reportedly issued some cautious comments about

IBM

(IBM) - Get Report

, which lately was down 2.3% and the biggest drag on the Dow. Big Blue had risen nearly 50% since Oct. 9 heading into Tuesday's session.

The More Things Change

Back in mid-June, I wrote about the

technical significance of Microsoft's struggle to stay above support at $50 and break through resistance at around $57.

Shortly thereafter, Microsoft began breaking down in conjunction with the major averages' July swoon, trading as low as $41.41 on July 24. Mister Softee then rallied back to as high as $53.45 at the broader market's August highs before backsliding to as low as $43.81 on Oct. 9.

On Monday, Microsoft shares traded as high as $57.25 early on before closing at $56.10.

The good news, for those long, is that Microsoft has produced a series of higher lows and higher highs since bottoming in July. The bad news is that it failed, yet again, to break through that $57 resistance level on Monday, which could potentially augur a near-term top for major averages as well. Microsoft shares lately were down 0.5% to $55.83.

Although it is a

bete noire

to many technophiles, Microsoft remains the most influential component of the market cap-weighted S&P 500, Nasdaq Comp and Nasdaq 100, as well as one of the top 10 drivers of the price-weighted Dow Industrials.

As Microsoft goes, so goes the market. Thus, it will be interesting to see whether the software colossus can resume its upward climb and move beyond resistance, or whether it'll lead the market averages lower once again.

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.