Tuesday's

breakdown threatened to turn into a meltdown Wednesday before an afternoon comeback put a chill into the most bearish scenario.

After having traded as low as 8051.91 early on, the

Dow Jones Industrial Average

recovered to trade briefly in positive territory before closing down 0.4% to 8172.52. Similarly, the

S&P 500

ended off 0.5% to 869.48 but well above its earlier low of 857.39 while the

Nasdaq Composite

finished down 0.6% to 1252.13 after having traded as low as 1237.08.

In

Big Board

trading, nearly 1.5 billion shares were exchanged, the heaviest volume since Aug. 15, while declining stocks led advancers 19 to 12. Nearly 1.4 billion shares traded over the counter while losers led 5 to 3.

Stocks tumbled early thanks to a profit warning from

J.P. Morgan

(JPM) - Get JPMorgan Chase & Co. (JPM) Report

and a disappointing outlook from

Oracle

(ORCL) - Get Oracle Corporation Report

. The afternoon comeback was attributed to a variety of factors, including the influence of Friday's triple-witching expiration, trades out of bonds and into stocks by asset allocation accounts, and contrarian buying prompted by an intraday spike in bearishness.

At today's peak, the CBOE Market Volatility Index traded as high as 44.30, the Chicago Board Options Exchange equity put/call ratio rose above 2.30, and the one-day Arms Index approached 3.0. Each closed well off those levels.

On

RealMoneyPro.com

, Jay Shartsis suggested the earlier high put/call data, particularly, should "be assigned extra bullish weight today because though the market is down, it's not so bad as to warrant such a high level of bearishness."

Despite the intraday reversal, jitters remain, and the fundamental outlook for shares got another jolt after the close of trading when

EDS

(EDS)

cut its third-quarter earnings outlook.

"We're seeing a pretty big selloff in Globex after the close," Philip Ruffat, director of the Futures Division at Mizuho Securities USA, observed shortly after EDS' warning hit newswires.

As of 5:30 p.m. EDT, S&P futures were trading down 2.80 to 861 in Globex trading vs. the regular-session settlement of 863.80.

Ruffat, who turned bullish not long ago, was unable to put much of a positive spin on today's reversal, suggesting the uptick in volume was supplemented by the rolling over of futures contracts from September to December.

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"Everyone is looking at what's going on with Iraq and in the bond market," he said. "Other than that, there's not much to report."

The price of the benchmark 10-year Treasury ended down 7/32 to 104 11/32, its yield rising to 3.84%. Separately, the dollar suffered its biggest decline vs. the yen in two weeks on news the Bank of Japan will buy shares from financial institutions to help shore up their flagging balance sheets. The U.S. Dollar Index fell 0.56 to 108.77.

Tinkling the Technicals

Meanwhile, concerns remain about the equity market's technical picture. At today's intraday low, the Dow was just 20 points above its Aug. 5 intraday low of 8031, while the Comp breached its Sept. 5 intraday and closing low of 1251. More importantly, the S&P 500 traded below support at 865 intraday and closed below 870, its Sept. 5 intraday low.

These technical violations have some observers convinced a retest, at least, of the July lows is now unavoidable.

"You sometimes find when averages take out support it gets everyone scared enough and you get a bounce," Frank Gretz, market analyst and technician at Shields, said explaining today's session. "But lower lows and lower highs is a simplistic definition of a downtrend and that's obviously what we're in here. Maybe we don't go straight down but I think

revisiting the July lows is likely."

Gretz observed "a lot of stocks are beginning to break," including those that so far have held up well such as

Caterpillar

(CAT) - Get Caterpillar Inc. Report

, which hit a 52-week low today of $37.59 intraday before recovering somewhat to close off 0.4% at $39.01.

Additionally, he noted homebuilders

Lennar

(LEN) - Get Lennar Corporation Class A Report

and

K.B. Homes

(KBH) - Get KB Home Report

each closed lower today despite separately posting sharply better-than-expected earnings and lifting guidance going forward. Lennar lost 2% and K.B. Homes shed 2.7% while the S&P Homebuilding Index fell 1.8%.

Rumors of homebuilders' demise have been greatly exaggerated many times in the past year and Gretz stressed that their charts are "not broken." But concerns about the quality of loan portfolios have recently caught up with mortgage-related names such as

Fannie Mae

undefined

,

MGIC Investment

(MTG) - Get MGIC Investment Corporation Report

and

Astoria Financial

(AF)

, among others. Some believe their experience is a prelude of tough sledding ahead for the still glistening homebuilders.

The market's comeback notwithstanding, the primary topic of conversation among traders today was the latest shortfall at J.P. Morgan, which closed down 5.2% to $20.44 after having traded as low as $18.80. Market participants are also still deciphering the meaning of Fannie Mae's disclosure Monday that the difference between the duration of its mortgage assets and offsetting liabilities has reached an all-time high.

Fannie Mae shares rose 2% today but few believe its problems are behind it, same as with the broader market.

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.