I am working on a gameplan in case we have a fast and hard break of Dow 8,000 and the 2003 S&P lows.

Most of my stock allocation in my hedge fund is in cash or short via FXP. I do have a few remaining longs, but they look terribly weak.

I am thinking that chaos could occur and that the market may take on more of the look of the financials like Citibank. As you can see from the chart from Eddy’s post, Citibank plunged through 2003 lows and is now at 13-year lows (click to enlarge):

I think the indexes have held up rather well considering the meltdowns in the average stock and maybe they play catch-up.

I am not happy even contemplating this, but without the financials and with the credit markets frozen, it’s just not that far fetched a possibility. I am witnessing the credit crisis at ground floor in Phoenix and the Southwest as my partner Blair, careful since 2005, is still in disbelief of the actual debacle unfolding. Blair has been lending for over 20 years and we have watched borrower after borrower get taken apart. Lender after lender follows suit. Confidence evaporating on a daily basis. You need the credit markets, which is where the big money lies.

Even if we explode to the upside, my strategy will have me on the sidelines for a while as all-time highs will be muted for many months. This bottom is insanely elusive so far. That is why I contemplate a possible money making trade in the direction of the trend lower.