Stocks found room to breathe Wednesday as the choking grasp of ever higher oil prices relaxed and crude dropped almost 3%.

After trading as low as 10,068.11 intraday, the Dow Jones Industrial Average rebounded to trade as high as 10,162.42, before finishing with a gain of less than 0.1% to 10,126.51.

Following a similar pattern, save for the higher close, the S&P 500 ended down 0.1% at 1098.63 vs. its intraday low of 1092.47 and high of 1102.44. Meanwhile, crummy results at leading Internet vendors limited the Nasdaq Composite; it dropped 0.2% to 1,855.06 after trading as low as 1842.20 and as high as 1864.80.

Stock proxies erased their losses in the afternoon once the New York Mercantile Exchange's September crude contract closed down $1.32 to finish at $42.83. The oil swoon boosted airlines, mainstream technology companies and others that faced higher costs and lighter demand from consumers due to crude's rise. Economic data showing manufacturing orders expanding in June also helped.

Still, weak earnings and lack of follow-through in the Nasdaq and S&P 500 don't generate much confidence that Wednesday's action will ignite a huge rally -- especially with Friday's employment report and next week's FOMC meeting looming ahead.

The Dow was led higher by Procter & Gamble ( PG), up 40 cents to $54.06, Hewlett-Packard ( HPQ), up 19 cents to $20.44, and Citigroup ( C), up 36 cents to $44.40. Notable drags on the price-weighted index included Exxon Mobil ( XOM) and American International Group ( AIG).

But the decline in oil prices wasn't enough to save Internet stocks from getting gored again.

Jim Cramer is blaming Google's pending IPO, but it seems as if the actual results of this crowd are to blame. Poor earnings and reduced outlooks simply aren't meeting the often lofty expectations for these high fliers.

Barry Diller's IAC/InterActiveCorp ( IACI) was among those hardest hit on Wednesday, finishing down 16% to $22.80. IAC, which owns Hotels.com, the Home Shopping Network and Ticketmaster, said net income in the second quarter fell 25% while revenue of $1.5 billion was less than expected. The company also said full-year cash flow would be at the bottom end of previous guidance.

Elsewhere, real estate listings site Homestore ( HOMS) fell 15% after recording a bigger-than-expected loss and online-ad seller ValueClick ( VCLK) dropped 27% after reporting earnings below forecasts.

Internet bellwethers Amazon ( AMZN), eBay ( EBAY) and Yahoo! ( YHOO) all declined as well. Yahoo lost 4% to $27.91, eBay declined almost 2% to $75.80 and Amazon fell 1% to $37.12.

Also hurting the Comp was optical networking-gear maker Ciena ( CIEN), which tumbled 25% after saying third-quarter sales would be 20% below analysts' previous estimates. (Colleague Scott Moritz says even Ciena's biggest boosters are throwing in the towel.)

There was a small silver lining for tech, albeit of the contrarian variety. Prognosticators claiming a new tech bubble is upon us lost what could have been the prime example of market frothiness.

Nanosys, the Palo Alto, Calif., nanotech company that's never made a profit and had revenue of $3 million last year, yanked its initial public offering. Without a single commercial product on the market, Nanosys was seeking a valuation of as much as $370 million. "We cannot assure you that we will develop products," the company warned in its IPO registration statement.

Now there's a business model the Google bashers could really make hay with.

Bad News for Crude Bulls

Oil was in its familiar pattern -- climbing at the open -- until crude bulls got bad news midmorning from the Department of Energy. In its weekly petroleum status report, the DOE showed inventories of gasoline had increased rather than decreased at the height of the summer vacation driving season. Distillate stocks also grew about twice as much as expected. That immediately crushed gasoline futures and spilled over to crude contracts as well.

A second downward blow came from the ongoing soap opera "As the Yukos turns." The Russian oil giant said it would be able to draw on accounts that the government might have frozen to cover $3.4 billion in back taxes. That will keep the company's fields pumping crude. Yukos supplies almost 2% of the world's capacity.

The oil snapback followed Tuesday's $44.15 record close in the 21-year history of the crude contract on the NYMEX. It was the third record in the past week. As mentioned here Wednesday morning, prices on forward months of the contract were signaling that the current contract had overreacted.

The record level was lost as OPEC also moved to dismiss some of the confusion that had helped push prices so high. On Tuesday, OPEC President Purnomo Yusgiantoro, also Indonesia's energy minister, told reporters that Saudi Arabia was tapped out of additional capacity in the short-term even as unnamed Saudi officials told Dow Jones otherwise.

On Wednesday, Saudi Aramco told Bloomberg it was opening new facilities at two fields, Abu Safah and Qatif, several months ahead of schedule. Once production gears up, the new fields could increase the kingdom's output by almost 1 million barrels a day. That seemed intended to shoot down Purnomo once and for all.

OPEC also issued a statement from Vienna declaring that the group had immediate spare capacity of 1 million to 1.5 million barrels a day.

Despite the rebuke, at least one thing Purnomo said Tuesday still holds: With its wild swings, oil trading remains "crazy."
In keeping with TSC's editorial policy, Pressman doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback.