To many traders, the Dow s third straight triple-digit drop Friday was a splash of cold water. After a long rally that began last March, the three-day selloff suggests buying interest could be waning.

Of course, no recovery is without its stumbles, but this drop was the Dow s largest since October. Now, the question is whether the market is in the midst of a significant correction or just another blip?

Here are five signs Wall Street veterans will be watching to assess whether the market has further to fall.

Corporate Earnings

In the near term, traders can look to earnings reports from Apple, Yahoo, Texas Instruments, AK Steel, U.S. Steel, and Caterpillar. Investors will have an eye on Apple for signs of consumer spending, and on Texas Instruments for more indications of the semiconductor space. The industrial names will provide another view of how the stimulus is working, says Anu Sharma, managing director of the Nasdaq market intelligence desk.

We re already seeing great numbers, but misses will have more of an effect than positive surprises, he says.

The latest batch of earnings reports have not been as bad as the market s reaction. If you strip away all the headline risk, I think earnings are actually behaving themselves pretty well, says Jack Ablin, chief investment officer at Harris Private Bank.

So why haven t reports inspired much buying? It could be because of what s priced in. Consider earnings growth in tech is expected to exceed 200% for the fiscal year 2010, and the financial services sector is expected to show growth of more than 100%, Sharma says. Last year s nadir makes comparisons easier, but the new expectations will not be easily met, he adds.

Market Metrics

There are a couple of key barometers of sentiment worth watching starting Monday.

First, traders can look at support levels. In the week beginning Jan. 19, the Dow fell below its 50-day moving average for the first time since July 2009, raising the eyebrows of technical strategists. One sign of a larger correction at hand will be whether the averages fall through the next technical support levels.

The next support level benchmarks for the three major indexes are about 2% lower than their prior levels -- 10100 for the Dow, 1082 for the S&P 500 and 2100 for the Nasdaq. If the averages break though those, the next support levels lie about 8% lower, says Sharma.

Traders should also keep an eye on volume. Volumes are light on the way up, but will be heavy in a correction. If one is underway, Sharma says he wouldn t be surprised to see the Nasdaq running at 2.5 billion shares a day a rate at which movements can snowball. High volume means panic and that people are willing to take their profits, he says.

Another way to handicap market sentiment is to look at the percentage of shares outstanding that have been sold short and haven't yet been repurchased at a particular time. After the best year for the market since 2003, short interest on the Nasdaq declined only 6.7% year-over-year and 1.1% on the NYSE, Sharma says.

In the face of a huge run-up, you would think they would cover losses, but they are willing to hold that risk on the table for an extended period, and that says short sellers think we might be in for a double dip recession, he says.

For the December month-end period, short interest on the Nasdaq Composite Index fell 0.8% to 6.5 billion shares, while the NYSE saw a decrease of 3.2% to 12.98 billion shares, Sharma says.

Even if the market corrected 10%, only the people who got into short positions after October would be in a position to make money. Everyone else is hoping for a bigger correction.

If shorts begin to cover, that could mean two things: Either the markets are taking off and traders are willing to take a big loss to get out, or traders won t make a bet that it will fall further. On the other hand, the longer traders stay in, the more it shows they're expecting the double-dip.

Economic Indicators

Investors will be trying to get the most recent big picture of economic progress. That could come from the advanced reading of the fourth-quarter gross domestic product scheduled to be released Friday. Economists predict an increase to an annual rate of 4.6% -- a significant improvement over the downwardly revised 2.8% rate in the prior quarter. That reading could offer traders some evidence that the economy is on the right track. It has the potential to move the market, says Ablin. I m crossing my fingers that it s good news.

More data are also scheduled to be released on home sales, consumer confidence and jobless claims. Although new-home sales are expected to have improved, existing-home sales are not. And while consumer sentiment is expected to have risen slightly, the Chicago Purchasing Managers Index is expected to show a decrease in manufacturing activity.

The Federal Reserve

The Federal Open Market Committee of the Federal Reserve is expected to hold its key interest rate at a record low when it releases its policy statement Wednesday. But it s the wording of that statement that traders will be eyeing.

They ll be combing the release for clues as to when the Fed s stimulative measures will be eased and hints about the Fed s take on the recovery.

Bernanke wants [the release] to have the excitement of moss growing on trees essentially he doesn t want any surprises, Roberts says. People will be looking for clarification, and any large market moves will likely be an unintended consequence of the Fed s wording, he says. For the most part they will acknowledge the situation, say that they ll phase out easing and people will sit and say But there was a comma here or a period there that s different, trying to read something into it.

This time, any new information in the FOMC release could be overshadowed by the State of the Union address that night, he says.