Failure was the order of the day Thursday, which featured the inability of blue-chip averages to hold above key technical support levels, another day of relative weakness for tech proxies, and a failed breakout by gold.

At about 10:30 a.m. EDT, the

S&P 500

was trading at 1005.02, the intraday low on

Sept. 2, when the S&P accomplished a technical breakout by eclipsing its mid-July highs. The index bounced sharply from the 1005 level, trading as high as 1015.97 -- right near that breakout level -- before faltering again in the final hour, closing down 0.6% to 1003.26, its low of the session.

The S&P managed to close above its 50-day moving average at 1001.39, another closely watched technical level, but its failure to sustain its midmorning bounce was a defeat for the bulls.

"On a technical basis

1005 is huge

because 1005 to 1015 is right where the market broke out," said Gary Kaltbaum, president of Kaltbaum & Associates. "It had held up every time they tried to break down" prior to Thursday.

Other averages followed similar patterns to the S&P's, ending at or near intraday lows. The

Dow Jones Industrial Average

closed down 0.9% to 9343.96, falling below its 50-day moving average of 9347.82, after trading as high as 9458.49. The

Nasdaq Composite

shed 1.4% to 1817.20 vs. its best of 1856.20.

Declining stocks led advancers 21 to 11 in

Big Board

trading where 1.5 billion shares changed hands, down slightly from Wednesday. Over 2 billion shares traded over the counter, also down a bit from the prior day, while decliners led by nearly 3 to 1.

"Today was fairly important, you broke some support areas," said Philip Roth, chief technical analyst at Miller Tabak, who also noted several averages broke the lows hit during the last downleg from Sept. 10 to Sept. 12. "This is the beginning of a minimum 10% correction, something bigger than we've seen since the rally began" in March.

Despite recently hitting "marginal highs," the market has been "deteriorating for weeks," Roth said. "There's been a loss of momentum plus tremendous speculation

creating a classic top. The risk/reward

in owning stocks is poor until we get oversold."

The technician suggested the Dow and S&P could fall between 10% to 15% and the Comp by as much as 20% from recent highs before the end of this correction "within the context of a cyclical uptrend that has a little more to go in the first half of 2004."

In other words, he's not predicting doom, but what many would say is an overdue correction after a tremendous rally.

Fundamental catalysts cited for the decline included a dividend cut by Dow component

Eastman Kodak

(EK)

, a profit warning by

Bisys

(BSG)

and a weaker-than-expected report on durable goods.

August orders for durable goods fell 0.9%, the first decline since April and vs. expectations for a gain of 0.6%. Inventories fell 0.4% while shipments, a reflection of sales, tumbled 2.9%. The August data overshadowed an upward revision to July's durable goods to a gain of 1.5% vs. 1% originally.

"August's report included negatives in many categories of orders, and indicated that August's soft industrial production report may not have been an anomaly," commented Peter Kretzmer, senior economist at Bank of America. "The disappointing durable goods report ... is a continuing sign of caution on the part of manufacturers in beginning a process of increased capital spending and inventory building."

The durable goods data also overshadowed a larger-than-expected decline in weekly jobless claims, which itself was dismissed by some as being caused by disruptions in filing claims brought about by Hurricane Isabel.

Technical and fundamental concerns notwithstanding, some market players simply attributed the decline to the season.

"Our conclusion is that the much-awaited correction has begun," commented Martin Pring, editor of

The Intermarket Report

. "Unfortunately, it is developing at one of the weakest times seasonally for the market against the backdrop of a mini speculative blowoff in the technology sector. If our suspicions are correct the decline is likely to be unexpectedly sharp, especially in the tech sector."

The weak seasonal patterns are often a reflection of tax-related selling by mutual funds ahead of their fiscal year ends. "All else being equal, the underlying theme is mutual fund selling," said Scott Curtis, managing director of equity trading at Kinetics. He believes the pattern will remain dominant until the next options expiration on Oct. 17.

No Shelter Here

As stocks came unglued Thursday afternoon, Treasuries rallied, with the benchmark 10-year note closing up 13/32 to 101 11/32, its yield falling to 4.08%, its lowest level since mid-July. The recent rally in Treasuries has raised some concerns about the recovery's path. (At

Street Insight

, Doug Kass noted the Morgan Stanley Cyclical Index -- a gauge of economically sensitive companies -- broke its uptrend line Thursday.)

While Treasuries advanced, gold failed to benefit from any "safe haven" status, and suffered a whipsaw session of its own. After trading as high as $394.80 per ounce intraday, its highest level since April 1996, gold futures reversed sharply to close down 0.4% at $385.90 per ounce.

Following a similar pattern, the Philadelphia Stock Exchange Gold & Silver Index fell 4.1% to 93.52 after trading at a 52-week high of 98.49 intraday. Industry stalwart

Newmont Mining

(NEM) - Get Report

fell 4.4% to $40.33 after trading as high as $42.45.

While the session was disappointing for gold's fans, the metal remains in a technical uptrend that won't be violated barring a close below $376 per ounce, according to Pring.

Given his expectation for a sharp correction in equities, "we believe that gold, silver and the gold share indexes could well be on the verge of a very strong exhaustion move," he wrote. "If this suspicion is correct we could see a very fast high-risk extension to the recent advance."

That extension appeared under way early Thursday, but ultimately faltered, keeping with the session's overall theme.

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.