These are extraordinary times in the markets and we must remember that the news (like a 700 Billion dollar injection) will alter the technical indicators. On the daily chart we were starting to see positive divergences in some of the indicators and while this was potentially bullish the fundamental picture has now changed significantly.
I believe the market was anticipating that the problems in the financial sector would be contained AND that the other sectors of the economy, with the exception of housing, would hold their own. As a result the markets were setting up for a rally.
The current problem now is uncertainty caused by the extent of the failure in the financial system. Even though the government is preparing to bail out the institutions which caused the problem in the first place, public confidence is severely shaken. As a result one can expect that the public will become more cautious with their spending and avoid any risky appearing investment. This leads me to believe that we will see continued selling in the financial markets as the investing public moves their retirement funds out of stocks.
With occasional rallies, I expect the markets to continue to trend lower through the end of the year. At that point we should be able to assess the affects of the FED bailout plan and gauge the market activity using the technical indicators.