We're going to be just fine people. Right now I think the odds are 90% that the market stabilizes today and goes up. I don't think it will end up in the green but it could take back half of the losses by the end of the day and start to rally even within a half hour of the opening. A few hours ago I was putting the odds of a recovery at 25%. I'll explain why and what has happened in the past few hours to make me more bullish in a few minutes. First some quick notes:

1)If you haven't read my stock trading article yesterday about the market do so after you finish this one. It includes two podcasts I recorded yesterday about the current market situation - one with Dave Skarica and another with Andy Emerson. It also includes some technical analysis charts of Friday's close, showing how the market is more oversold now than it has been in 10 years.

2)Press reports are saying that comments from a French central banker helped spark the sell-off in Europe. A story in the International Herald Tribune published Friday quoted remarks from Christian Noyer, governor of the Bank of France and a member of the European Central Bank, as saying that "French banks will weather this turmoil without major trouble even though they are clearly, like all banks, in the world still in the process of marking down assets." He said that regulators were assessing the balance sheets of European banks SocGen and BNP. Both those banks crashed on those remarks, and the selling spilled over into financials and everything else. Of course the markets have been in a downtrend since October, which has sped up over the past few weeks, so his remarks didn't cause the current calamity. The calamity looks more like a capitulation bottom to the downtrend, albeit a scary one.

3)In the podcast I did with Skarica I mentioned in passing that I was starting a hedge fund. I meant to write about this in much more detail later, but since I mentioned it some people asked so I'll give a quick reply here. Towards the end of last year I decided that I was going to make some business decisions in 2008. One would be to invest money in a local startup company and another would be to start a new hedge fund. I put some cash aside to do both of these things. I'll explain more in detail later. But in the first few weeks of the year I set it up the hedge fund as an LLC partnership, got the legal documents for it drawn up. a bank account opened. Last week I began the process of opening up a brokerage account and wired the first deposit on Thursday.

My plan was to put a little bit of my money in it, as I was concerned I may not get it going in time to try to catch the bottom, and some family money to just get it started and then in a few months once the next rally got towards it latter stages I was going to liquidate any personal stock holdings I had and put that money into the fund. At the moment I'm not looking for investors in this fund. Perhaps in a few months after the market bottoms and rallies a bit. I am going to be the sole person responsible for it, but will have Andy as a consultant.

I bought a bunch of positions personally on Friday, but didn't make any purchases in this fund's account. The bottom line is that through dumb luck I started a hedge fund that is in cash and will be able to trade after the market has melted down. This means that it will have a good track record right at the start. I'm going to take a hit in my personal accounts, but in the long-run this market drop will probably be to my benefit. There are more important things to talk about now, but I just wanted to give you an idea of what was going on as I mentioned it in the podcast without thinking.

4)Look I believe this is a bear market and have been saying that since November, but the panic in the market is starting to get silly. As I'll discuss in a few moments a few hours ago I was getting scared myself. But comments some people are making and in the press are getting ridiculous. Yesterday morning Dave Skarica told me that people were walking around the Vancouver Cambridge House gold stock picks investment conference in shell shock. All commentators there were bearish and people talked as if buying anything now would be suicide. One poster on our WSW stock members stock blog who was at the show wrote:

"At the Gold Show today Skarica was the only guy I heard that thought resource stocks (commodities) would be the "next bubble". He was very positive in a very gloomy setting. All the others, Jim Willie, Paul Van Eeden, Jay Taylor, etc...were POUNDING the deflation theme. If there was a window handy I would have jumped out after listening to that message. They said to a man that the big banks are in huge trouble in the USA. Maybe finished. Total derivative meltdown underway. The only thing they really like is physical gold. Not a fun day at the conference. A head scratcher to me. Gold at record highs, and people ready to slit their wrists, and head for the bunker. A real disconnect in the markets. I'm holding on to everything I can. Best of luck to anyone that can figure this shit out. I felt like I had my head in a vice today. "

If you don't think people are getting overly bearish consider these comments by Jim Sinclair: "This is it. The DJII futures are down over 500 points. If the Federal Reserve fails to take emergency action before the US opening tomorrow, you will see the DJII open down 1000 points as the public joins this professional panic... If Central Banks fail to cause a torrent of liquidity from their unending check books then $450 trillion of derivatives will take us to the world of Mad Max."

5)I think things are stabilizing. The danger the market faces today is indeed the type of meltdown Jim Sinclair warned about. Crashes are rare. There have only been three major market crashes in the United States in the past 110 years. Crashes are statistically called "outlier" events, because they lay outside of the statistical norm and theoretically aren't supposed to happen. According to efficient market theory they shouldn't happen, but they do.

What causes a crash is when a market that is already extremely oversold by anyway you measure it - whether it be sentiment or any technical indicator or method you can think of, even historic valuation models - continues to fall anyway. The already oversold market snowballs into a total cascade of selling that picks up in velocity hour by hour until every single potential seller in the market is flushed out. EVERY single one. I've never seen the market do this, but I felt as if I have seen the market on the edge of doing this several times in the past ten years. Every time I got scared and most often bought anyway thinking that the market HAD to bottom.

That's why I did some buying on Friday. I knew that the market would either have to bottom shortly or would have a crash. That is why today's big gap down opening has the potential to be a crash. If the market doesn't stabilize by the close today then the selling will cascade and there will be a wipeout. If the market is falling into the close I will likely go completely into cash and just wait to see what happens. I'll buy back after things stabilize even if that means risking a gap up the next day or missing out on a rally induced by Fed intervention. But I don't think that is going to happen a crash is going to happen.

Late in the evening I worried about a possible crash and took a look at the European markets. They opened to huge selling, with almost all European indices down over 5% and the German DAX down over a whopping 7%. This is all on the backs of yesterday's over 5% declines. That's over 10% in two days for these indices. I thought we were in big trouble. If those markets were to finish on lows this morning then our US markets would likely indeed have a crash today. I was considering selling all of my holdings on the open and saying "XXXX it!."

Well as I write this the DAX is only down .63% and most European indices are actually trading in the green, having put on what appear to be key reversals. This sets the stage for a recovery bottom in the US markets today. In fact the US markets could actually gap down and simply go up from there. The odds of a bottom today are now 90% and the odds of a crash are 10%. I plan on buying more personally to take advantage of the fear. Stock picks are key now.