I covered my Canada short today.  Toronto was down 500 points today at one time as the sharp decline in the price of oil whacked the Canadian energy stocks. 

As I have been writing for some time, the Canadian market had been running on fumes.  The TSX may have further to fall, but with Canada down over 13% from the top a month ago to the lows today, I thought it prudent to take profits.

I am now only slightly net short.  I think a near-term bottom will occur some time this week or next, and I think the risk/reward ratio of being short is no longer particularly overwhelming.

I do think that even though we may be close to a bottom in terms of time, I think we may have a ways to go for a bottom in return.  During the 2001-2002 bear market, there were three occasions when stocks broke through their 52-week low only to fall another 13%-18% before hitting bottom.  Upon hitting the lows, stocks bounced sharply. 

If 2001-2002 is the playbook, with the S&P 500 3% below the most recent 52-week low, we may have another 10%-15% to go. 

The good news is that the declines in the prior bear market were severe but occurred over a short time period, usually a few weeks. 

However, the action has been nothing short of dreadful the past few days.  On Monday, the market opened higher then careened down, even though the US government - the most powerful political entity the world has ever seen - proposed bailing out Freddie Mac and Fannie Mae.  Then, today, when oil suddenly cracked, the market spiked higher into positive territory, with the Dow recovering from a 200 point decline, only to roll over at the close.

This is not healthy, and makes me think there is more selling to come.

While everyone was focussed on oil, have you seen what natural gas has been doing lately?

Nat gas is down 15% and appears headed lower.

No wonder WTI cracked and Canada was crushed.