Red Sign of Shudde M'ell hands use and timing against Nightmarish X in Arkham Horror

Question

In Arkham Horror, players may use the spell Red Sign of Shudde M'ell to lower a monster's toughness by 1 (to a minimum of 1) and ignore a monster's special ability until the end of this combat. Can it be used to cancel the monster ability Nightmarish X? If yes, can the investigator reclaim the hand used for it at the start of the combat round?

There is a problem with the Arkham Horror rules about the specific timing of when an investigator can switch equipment at the cost of his/her hands. The rules state:

You can choose to switch weapons/spells in later combat rounds, but as soon as you “release” a spell or weapon, it stops working for you.

Emphasis on "later combat rounds" is mine.

It appears that the assumption is that spells are only cast during the combat rounds, which comprise the combat check and all optional spell checks. However, there is no rule that says Red Sign cannot be cast during the preceding horror check, which takes place before the combat round. Successfully casting this spell against a monster with the ability Nightmarish N, where N is greater than 1, can prevent the reduction of N - 1 sanity after a successful horror check.

The only other cost to the Red Sign is its use of one hand. However, that resource is immediately gained back, since the combat round that follows is, in fact, one of the "later" combat rounds mentioned. At the start of the subsequent combat round, all devoted hands can be now be switched, and whatever hand that was used for the spell can now be switched for the use of combat items, such as guns or even another copy of the Red Sign.

I tried searching everywhere but the FFG forums and I haven't encountered any other people who are interested in deciphering this metagame puzzle.

To recap:

1. Can Red Sign be used to cancel Nightmarish X before the horror check?
2. If yes, will the investigator be able to use two hands worth of equipment for the following combat check(s)?

Answer 1

Red Sign can be cast during any phase (so combat during any phase isn't an issue).

'Combat' begins as soon as you stop at/leave an location/street with a monster or during the encounter phase when 'A monster appears!', etc. This is to say that you're already in combat when you're figuring out how many dice to roll for your horror check. As Red Sign makes no specific mention of casting while making a combat check, rather it only refers to 'combat' in the general sense, Red Sign can be cast before making a horror check to remove Nightmarish from a monster.

You pose an interesting situation with your second question, but this has nothing to do with your primary question and is covered by the other question you posed here: Stateful equipment use for Red Sign of Shudde M'ell in Arkham Horror

Additionally, from the Kevin Wilson thread of the FFG forums:

Can Enchant Weapon, Shrivelling, Wither, Dread Curse of Azathoth, and Red Sign of Shudde M'ell be cast at any time after an investigator engages a monster, so as to, for example, use the Red Sign to cancel Nightmarish before the Horror Check, or allow one to see if a "weapon" type spell succeeds before making the decision to fight or flee?

Yes. Yes you can.