We are at one of those fairly rare moments – “THE MOMENT” – in an economic/credit cycle. While I think it’s unlikely, the bulls could stampede tomorrow and take the market(s) up 2% with the logic(?) that, “things are so bad that the Fed will be forced to lower rates soon, so things will be GRRRRRRRRRRREAT [with deference to Tony the Tiger] in ’08!!” This is the old “good news is good news, and bad news is good news; ergo, all news is good news” weltanshauung. This has been the prevailing bull market thesis for the past few years up until the last two weeks. And make no mistake, it has worked marvelously.

Now comes the test. The market’s been smacked around, the news has been really dire over the last couple of days and the question is: Can the bulls take this thing up or do they throw in the towel? I think we could see a 3%-5% down day tomorrow – a real panic sell-off. There is so much risk that still needs to be offloaded before anyone gets comfortable.

My bet is that we are substantially down tomorrow and then down even more on Tuesday when Bernanke doesn’t lower rates (although I’m sure the “language” will be a bit more dove-ish). But, again, the bulls have been so persistently… well… bullish that it’s hard to keep these nutjobs down. Regardless, it will probably be a very big move in one direction or the other. While I’m not a trader, my preference is for it to be down. But given the persistence of the bulls, in general, nothing surprises me anymore.