Even though I've been talking about a possible 7,200 to 7,800 area Dow Jones Industrial Average as a bottom for at least 2-3 months now (and I do still think we'll get there soon) and even though bad news is streaming in like a tidal wave, believe it or not, I'm starting to see some bullishness on the horizon. In other words, I think we're getting near a bottom soon.  Very soon. But not before  we see a bit more pain to the downside, but I think the pain will soon be coming to an end.

I think some of the events that we'll see unfold between now and the end of November will establish a possible bottom to this market. Watch carefully, because in coming days (or weeks) --- I'm going to start layering into CALL OPTION positions on the S&P 500. Ticker symbol SPY, to be more accurate.

And while indicators and some experts suggest that a near-term bottom may be near for stocks, other market pundits, such as George Soros say the worst is yet to come. (Side note: Even though I don't really care for George Soros (politically), he's still a person who's definitely 'in the know' of what markets are likely to do, and I watch and listen what he says closely. )

The stock market is definitely a key barometer of the economy, energy demand and consumer psychology. We all know markets don't go up forever and they also don't go down forever. Right now, believe it or not, many indicators suggest that a rebound in stocks and commodities could be on the horizon, even if more bad economic news continues to stream in.

It's not unprecedented for stocks to bottom before economic fundamentals improve. During the Great Depression, the Dow Industrial Average bottomed in 1932, but bad economic news continued to stream in for another three years. Likewise, when the Dow plunged 45% in 1973-74, the Dow rallied 53% from its 1974 low, though it was another 18 months before the economy began reporting signs of recovery.

Also, toward the end of 1974, after the Dow had bottomed, inflation started to spike higher, reaching 10.3% by early 1976. Inflation continued rising through 1980, blasting gold to $850 and significantly supporting energy prices. The main cause -- as it could be again -- was massive money pumping by the Fed.

More recently,Sweden experienced a housing bust in the early 1990s that swelled bad debts to 12% of Sweden's GDP, far greater than now being seeing in the US. In September 1992, Sweden's government injected capital into failing banks and implemented blanket depositor insurance. In the 12 months that followed, Sweden's stock market soared 42%, even though the economy continued to reel.

Several analysts and market pundits suggest that the Dow, as well as all assets, should be looked at in inflation-adjusted terms to truly understand their values and to put them into historical context.

And in that sense, at its nominal low of 7,884.82 on Oct. 10, the Dow in real terms had already lost 77% of its value and was trading at a real inflation-adjusted equivalent of about 2,550.This suggests that the bulk of equities deflation may be in the rearview mirror, and the same goes for commodities. It also means that the Federal Reserve's attempts, as well as those by all central banks, to reinflate asset prices should soon begin to impact markets.

That's what happened after the 1973 to 1974 bear market, which is a better analogy to today's economy and markets than 1929 to 1932, when the US and global economies were held down by a gold standard. Asset prices only started to rise once the dollar was devalued by raising the official dollar exchange price of gold.

In the 1973 to 1974 bear market, the US did not have a gold standard. So the Federal Reserve and other central banks solved issues by simply printing large amounts of money. And even though the economy remained in a severe recession for several more years, inflation went through the roof, igniting a rally in both stocks and commodities.

Currently, according to many technical indicators, the Dow is more oversold than at any time since 1932 and it's more undervalued than it's been in at least 50 years. On Oct. 10, 87% of all stocks on the New York Stock Exchange (NYSE) hit new 12-month lows.

That kind of downside exhaustion, where more than 50% of NYSE stocks hit 12-month lows at the same time, has occurred only four times in 1962, 1966, 1970 and at the crash low of 1987. Each one of those data points was at orwithin a few weeks of a major bottom. Similar technical indicators and data show that most commodities may have also hit their major lows.

The bottom line is, if you're waiting for bad news to stop streaming out of the economy before investing or speculating again, or at least dipping your toes back in the water -- you're going to miss the profit boat, big time. People need to remember that the stock markets and the commodity markets look ahead, not backward. Does all this mean that I believe the credit crisis is over? No, it's probably not over, but I do think we'll get a classic bear market rally soon in stocks,and in commodities,whichcould continue for several weeks, possibly even several months. It could easily send the Dow back to the 10,000 to 12,000 level. Gold back to $900 or higher. Oil back to the $80 to $100 zone and natural gas back up the $8 to $9 area.

Meanwhile, other pundits, such as legendary hedge fund manager George Soros, aren't so optimistic and see the potential for sharply more downside to come -- and soon, too.

I agree.

Soros dropped bombshells last week while testifying before Congress and speaking at a conference at MIT, suggesting that the markets could potentially see even more pain in the near future.

"Up to two-thirds of the world's 10,000 hedge funds -- massive investment pools with $1.9 trillion in assets -- will fail in the weeks ahead," Soros said.

If he's right, up to 66% of those $1.9 trillion in assets will soon be dumped onto the market. According to Soros, hedge funds are highly leveraged and their investors are losing money hand over fist.

So far, average 2008 hedge fund industry losses have totaled more than 11% through September, with energy and basic materials hedge funds down 20.8% this year.

For example, Farallon Capital Partners has lost 24% of investors' money, while investors in Citadel's flagship hedge fund lost nearly 40%. Even BP Capital, managed by renowned Texas oilman T. Boone Pickens, has seen massive losses of nearly 60%, resulting in nearly $2 billion in investor redemptions.

Unsurprisingly, hedge fund investors -- including many of the nation's largest pensions and universities -- are wounded and stampeding for the exits, demanding that these funds return what's left of their money. And this is what could fuel another large drop in equities and commodity prices.

But as a rule, hedge funds only allow investors to ask for redemptions once each quarter. Many of them require that investors who want their money back must ask for their redemptions before the end of November.

There're lots of solid reasons to believe that the stock and energy markets may have reached a bottom or are getting close to a bottom, but until investors stop pulling their money out the markets, we're probably going to see some more downside. But you also have to remember that not all hedge funds are long-only funds. Many of them are short, and when investor redemptions come in, they have to buy in order to cover their positions, which lifts prices higher. So about the only thing we can really count on is much more volatility ahead. The final thought here is... expect a sharp fall lower in stocks, which will be followed by a rally that I think will catch more investors totally off guard.