Editor's Note: The following article was written by Raymond James Chief Investment Strategist Jeff Saut. It has been reproduced with permission for the benefit of the Minyanville community.

It’s been said that “in horseshoes and hand grenades,” all you have to do is “be close” to be a winner. Similarly, if you are nearing either a downside, or upside, inflection point in the stock market, all you have to do is be close to make money. With that thought in mind, I entered last week suggesting we were close to a downside inflection point in the equity markets, despite the fact that view conflicted with my previously held strategy that the stock market would likely slide into the beginning-to-middle of October.

Indeed, I entered the cruel month of September in cautious mode, fearful of the aforementioned seasonal trading pattern. However, my views changed last Monday, given the carnage that had lopped 8.5% off of the S&P 500 (SPX) since the beginning of the month. I further opined that in my mind it was just a question whether the bottoming process was a one-day, or three-day, affair like the three-day accident back in October of 1987, hopefully without the “crash.”

Recall that on Friday (October 16, 1987) the DJIA fell 109 points, unsettling participants for the weekend. The following Monday, “the Street” showed up in sell-mode, leaving the senior index down 508 points. Tuesday, stocks opened lower and then staged a rally attempt, which failed, leading to an afternoon downside “washout” hour before firming into the close; and that was it, the lows were “in,” and the DJIA would gain nearly 60% over the next two years. While I'm skeptical that the DJIA will gain 60% over the next two years, I did and do believe that last week was a downside inflection point, which should have been bought, and said so in last Monday’s missive (September 15).

Subsequently, I went on to suggest in Tuesday’s strategy comments that when you see a headline, a picture and a chart on the front page of the nation’s newspapers about how bad the stock market is, like was replete in the media last Tuesday, you are typically near a tradable low.

Accordingly, aggressive types should have continued to buy weakness, while more conservative types should have waited for closing strength before buying into that strength on the premise that such action should imply a number of better days ahead.

Plainly, we got the Fed’s pumping of the money supply (along with the world’s other central banks). We also got the monitoring of the short-sellers (and more with the suspension of short-selling in 799 stocks); we got a relaxation of the rules permitting corporations to institute share repurchase programs; and, while it’s not in print, I assure you the powers-that-be called various financial institutions “suggesting” that they buy stocks.

I don’t mean to be so cynical, but having lived inside the D.C. beltway for years, that is just the way things work in a crisis. Clearly, many will note that the country is moving toward socialism, and at the margin I agree, but the alternative was financial Armageddon.

Indeed, one of the most powerful investment banks on Wall Street was whispering to high net worth clients last Thursday morning that we are in for a 1929 déjà vu reply, with a concurrent “run” on the banks, and subsequently told those clients to liquidate e-v-e-r-y-t-h-i-n-g.

When I was confronted with said recommendation by one particularly “freaked” account, I stated, “That is a once in a lifetime bet, and a really bad one at that (even if they are right),” and told him to buy some more stocks.

Later that day rumors leaked that a huge bailout plan was in the works and the markets finally showed firming action into the close, which, if you followed my strategy, should have been bought. Overnight the plan was increasingly telegraphed and Friday morning it was unveiled; the rest, as they say, is history!

So what should we do from here? If the typical pattern continues to play, traders should look for a 2 and a half to 5 session rally off of the recent lows, and we’ve already had two of them, so traders should look to sell rather than buy.