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 By Jon Markman

Big investors and government officials have pulled out all the stops in recent weeks to make it look like equity markets, and possibly the U.S. economy, hit rock bottom in early March in sync with the crash and sale of Bear Stearns (BSC, news, msgs).

Yet new evidence suggests that credit markets, where most of the world’s businesses are financed, have hardly improved a bit in the past month and threaten to drag corporate earnings and stocks back into the hole from which they appear to be emerging.

If that’s confusing, considering Tuesday’s 391-point pop in the market, imagine the climactic scene in a horror movie in which the hero fights to wriggle out of quicksand, yet every time he makes a few inches of progress he’s yanked back in by hidden forces.

What makes a happy getaway for stocks so plausible is that it has come at an ideal time in the market cycle. Investor sentiment readings by mid-March had fallen to extreme lows, prices and valuations of favorite stocks were at multiyear nadirs, short sellers had become fearless, and, by every account, a mountain of cash had accumulated on the sidelines.

Moreover, the Bush administration had shockingly stepped away from its long-standing effort to keep its mitts off Wall Street by announcing a plan to rein in bank and brokerage meanies with sweeping new rules.

In other words, everything looked perfect for a massive rebound, as savvy hedge fund traders — flush with money from their successful efforts to push the market down over the past few months — could take advantage of an obviously sour mood. You could smell a short squeeze coming a mile away, and that’s why I recommended a bullish stance amid the pall last week.

Give traders credit: Their effort to prey on late-coming, mom-and-pop short sellers and force them to cover their bearish bets at higher prices in the past few days has proved effective so far……………..

Said Drill: “I do believe the stimulus by the Fed and other parts of government will win the day — but what kind of day will it be?”

This truly is the point, as it is easy to guess that $160 billion worth of fiscal stimulus and the slashing of interest rates by more than 2 percentage points in record time are likely to improve companies’ access to credit. But it’s another thing to wait and see whether it actually occurs.