The markets currently seem to trade in a range: January 10th 2009.
In the recent past; approximately - Dow- 7700 - 9025.  It is a moving target.
 
  In 2008; we witnessed the near collapse of the global capital/Banking infrastructure, a result of exposure to illiquid mortgage related investments. Large financial institutions adopted defensive postures - a lending freeze ensued - in order to strengthen or protect balance sheets or to meet regulatory requirements. This produced a frozen credit environment. Banks wouldn't even lend to each other.The Federal Reserve opened its windows to lend in a highly unusual manner.
 
The global financial markets lost trillions of dollars in valuation as investors watched their pensions and retirement portfolio values decline significantly and grew increasingly risk averse. They gradually hid cash in short maturity Treasury bills, forcing those yields to near 0% and sent corporate credit yields soaring. This added perma-frost to the credit markets, prompting the Treasury Dept. and Congress to respond with a Troubled Asset Relief Program (TARP), a $700billion rescue package when financial institutions ( Bear Stearns , Lehman Bros. Washington Mutual, Wachovia) began falling like dominoes. Others, like Merrill Lynch, MorganStanley,Citi Group and  Bank Of America were bought up or rescued/ backed up by Government cash infusions.
 
The tight credit conditions and the earlier record high oil prices, caused a significant loss of confidence on the part of businesses, which resulted in higher unemployment numbers, as they attempt to manage costs.
Consumers lost confidence and further reduced spending due to concerns with job losses and mortgage foreclosures. This was more evident  with poor retail sales at peak holiday seasons; a sure sign of a  weakened economy, the worse recessionary environment in over 50 years. 
 
 
In the equity markets what is called a "trading range" developed. A tug-of-war ensues where; though the economy is in a recession, investors still find value in stocks trading at prices perceived to be much lower than their fundamentals values.
These shares are in  turn bought up to prices at times as much as 30-40% above the lower range purchase prices.
This short-term increase in share prices tends to bring selling pressure as there is a general understanding that; in spite of the TARP funding , lowered interest rates and stimulus plans; the fundamentals of the economy are still weak and might not support a sustained bull market.
 
In an attempt to rebuild capital, investors preferring to retain the recent gains, raise cash by reducing equity exposure, thus adding selling  pressure on stock prices and pushing the markets towards the lower end of the range... This may or may not start the cycle over again, which could last until the fundamentals of the economy dictate different market conditions.
This usually occurs well in advance of the actual economic recovery.
 
As it appears we are in a significant recession, the worst since the 1930s, we believe these cycles may last for some time, providing opportunities to attempt to rebuild capital while the Government economic rescue/economic stimulus activities manifest themselves to produce the intended economic recovery.
 
Norval E. Thompson