Bottom Drops Out; Dow Plummets 5.6%

Additionally, GM's partly owned financing arm GMAC applied with the Federal Reserve to become a bank-holding company, a transformation that would secure it access to funds offered by the Troubled Asset Relief Program.

Traders were also being affected by the fact that the major averages began to violate technical support levels, notably, the S&P 500's Oct. 27 low of 848 and a retest of that area on Nov. 13.

Phil Roth, chief technical market analyst at Miller Tabak, said that the next support areas he's using as benchmarks are the S&P's and Dow's 2002 lows, at 769 and 7200, respectively. On the upside, Roth said there's significant resistance for the S&P at 1000, and that a breakout above 866 would be the first sign that the markets may have turned around.

Roth stressed, however, that those are only benchmarks, and looking for a bottom is a dangerous undertaking.

"Most of the time, a market's final low is going to be at no particular place historically. Widely advertised support levels are broken, and then the market makes a base afterward." Asked if there would be any indication that a rally would come, Roth said, "The market will just do it."

Turning to financial companies, Citigroup (C Quote) saw a brief glimmer of hope as Saudi billionaire Prince Alwaleed, the largest individual shareholder in Citi, announced he would raise his stake in the staggering bank to 5% from 4%.

Alwaleed also endorsed Citi CEO Vikram Pandit, saying management is taking all necessary steps to survive the current climate. Alwaleed's moves weren't sufficient to quell investors' worries, and Citi shares tumbled 26% to $4.71.