After Monday's midday reversal, traders found themselves caught between a rock and a dead tyrant on Tuesday. Most believe the

S&P 500's

failure to hold above its 200-day moving average on

Monday augurs weakness, but the potential for another war-related rally remains intact.

"Under normal circumstances,

Monday's action would signify a key reversal day and could be the start of an extended pullback -- but these are not normal times or circumstances," observed Scott Bleier, founder of HybridInvestors.com. "The consensus says that there will be a big rally when we kill Saddam or win the war and the consensus tends to be correct,

if only for a short time."

Such conflicting forces were on display Tuesday as major averages vacillated between despair over the charts (and corporate warnings) and short-lived euphoria over speculation of Saddam Hussein's death.

Overnight, U.S. warplanes bombed a residential building in Baghdad where Hussein and his sons were reportedly attending a meeting. Several news organizations initially reported Hussein was killed in the attack but Allied commanders couldn't confirm it.

"I don't know whether

Hussein survived," President Bush said Tuesday. "The only thing I know is that he's losing power."

The inability to verify Hussein's status lent itself to various rumors of his demise. The scuttlebutt helped maintain a bid in shares throughout the trading day, most notably a rumor around 11 a.m. EST that al Jazeera had reported Hussein's death, which the Arab news network later denied making.

After spending most of the day in a very tight trading range amid tepid volume, the

Dow Jones Industrial Average

finished down 0.02%, the S&P 500 lower by 0.2% and the

Nasdaq Composite

off 0.5%.

Non-war-related issues included profit warnings from

Accredo Health

(ACDO)

,

Microchip Technology

(MCHP) - Get Report

,

RF Micro Devices

(RFMD)

and

Nautilus Group

(NLS) - Get Report

, which all fell sharply. On the flip side,

Altria Group

(MO) - Get Report

rallied 3.9% after a state judge in Illinois temporarily blocked a $3 billion punitive penalty levied on the company's Philip Morris USA unit last month.

With earnings season heating up, company-specific news is becoming more of a focal point, but the war remains paramount.

Mother of All Nonevents

Heading into Tuesday's session, the S&P was up more than 11% from the March 12 intraday lows but only about 2% since Bush gave Hussein a 48-hour ultimatum on March 17, and 0.7% since the war started on March 19.

In sum, "the actual war has been a non-event for the major averages," Bleier wrote.

Given that, he remains cautious and urged traders not to "chase" stocks. However, "we will see more rally attempts," timed to developments in Iraq, he wrote.

This gets to the conundrum currently facing traders: Even those skeptical for fundamental or technical reasons (or both) are reluctant to sell or initiate short positions because of the potential for war-related upside.

"We suspect that some defining momentum develops

in Iraq that creates more of a euphoria that becomes infectious and fadeable," predicted Jeff deGraaf, senior technical analyst at Lehman Brothers "The trick, and it will be as much a trick for us as

for the general public will be to fight the potential euphoria and bullish commentary that develops."

DeGraaf recommends waiting to take big positions for three days after major news developments to avoid "the classic mistake of being too early and forced to cover in response to the momentum of the fervor," the technician wrote.

In other words, resist any temptation to short until after the market reacts to clarity on Hussein's status and/or finalization on the war front.

Martin Pring, editor of

The Intermarket Report

, offered a more traditional -- and bearish -- technical view.

TheStreet Recommends

Monday's price action "in the face of excellent war news, represents an exhaustion move and suggests the market will now move lower," Pring wrote.

While the Comp has outperformed the S&P 500 since the October lows, the S&P made a new war-rally high on Monday, not the Comp or Nasdaq 100, he noted. "Typically, when the leader fails to lead, this is indicative of market vulnerability."

Furthermore, consensus opinion is "not

whether

prices will rally" when the war is won, "but

when

and

by how much

" the veteran technician observed. (Emphasis his.)

In addition to the comments above, the VIX fell below 30 for the first time since Jan. 17.

Such apparent complacency and faith in another rally attempt, "in itself, is a powerfully bearish sign," Pring continued. "So putting it all together, we are now expecting a test of the October low. After all, if the market cannot rally on the near certainty of victory in Iraq, what will make it go up?"

Good question, given the sluggish global economy, rising federal deficits, lackluster corporate results, stretched valuations, and still unresolved questions about rebuilding Iraq.

Gold? Again?

Those who believe Monday did mark a top (near-term or otherwise) for U.S. equities and the dollar, might think about that ultimate hedge: gold.

As I noted late Monday in

RealMoney.com's

Columnist Conversation, there's anecdotal evidence some traders are doing just that.

"I'm taking advantage of the dip in gold metal, dip in gold stocks, and the rally in the dollar," said Nick Moore, a portfolio manager at Jurika & Voyles, an Oakland, Calif.-based firm with more than $1 billion under management.

Heading into Tuesday's session, the Philadelphia Stock Exchange Gold & Silver Index (XAU) was down 24.5% from its Jan. 24 peak and gold was down about 16% from its early February closing high.

Moore has remained "

longer-term bullish on gold" and believes "the risk/reward got back to even odds" during that slide. That's relative to his "longer-term hypothesis, which is to say: I still have no respect for central bankers, here or abroad."

As a related aside, there was a lot of chatter Tuesday regarding an

Associated Press

story about "emergency" measures the

Federal Reserve

is contemplating. To my eyes, the story was a good encapsulation of various Fed statements late last year regarding efforts to fight deflation, but didn't offer many new revelations.

Citing trades in process, Moore declined to discuss specific names, other than to say he's buying "established and reasonably liquid

miners, not playing an edge or the real 'gold bug' stuff."

Players that

might

fit his criteria include

Newmont Mining

(NEM) - Get Report

,

Barrick Gold

(ABX)

,

Anglo Gold

(AU) - Get Report

and

Placer Dome

(PDG)

, which each rose Tuesday while the XAU gained 0.7%. Gold futures rose 70 cents to $322.90.

Notably, Pring -- among those

calling for gold's demise near its peak -- observed the Amex Gold Bugs Index did not confirm the recent new low for the metal. "This is the first positive share/metal interaction for many months and may well be the precursor of a rally," he wrote. "Now that victory in Iraq looks assured, gold has no reason for rallying -- so it probably will."

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.