SL: Where's the Bounce?

fundamentally, stocks are cheap as hell...
valuations low as can be...
price vs forward P/E is unheard of...so why no bounce?

technically we are super oversold...
VIX is at levels not seen for decades...
stocks have fallen numerous days in a row with no pullback...so why no bounce?

the gov't is behind us...
they passed the bailout..
they banned the shorts...
they even have bush talking to the media trying to calm our nerves...SO...WHY NO BOUNCE?

WHY WHY WHY? that is the billion dollar question...

the answer lies in econ 101...we lack a free market...we have supply without true demand...we are in a situation where traders don't trust the price of stocks. many of us can agree that what traders hate most is uncertainty...the guiding principle behind the fairness of the stock market is its ability to correctly price assets using the simple system of buying and selling...things are too cheap...ppl buy...things are too expensive, ppl sell...so what if u don't know the price of something....do u buy or do you sell? not so easy right? and thats whats going on....

first of all, what determines price? it relies mainly on supply and demand...its not based on raw material cost or scarcity, not even on historical prices nor analysts' reports...it's supply and demand...it's expensive when many ppl want to buy it and not many want to sell...its cheap when everyone wants to sell and few want to buy...and in any fair shop, restaurant, or stock market, the price would reflect this theory...any place that doesn't respect this pricing model is bound to first lose trust, then participants...this ability to correctly price assets is the basis behind technical and fundamental analysis...when the market is not fair, all fundamental and technical reasons go out the door...emotions don't mess up the market...it drives it...what disturbs its inefficiency is a changing of the rules....most notably, the changing of demand...sellers have been immobilized...at the moment, buyers are able to say that its too expensive to buy...but shorters don't have the ability to say that its too cheap to sell...supply has flooded the market with scared sellers...but with the short ban, inflated prices have kept away the greedy buyers and the fearful short sellers who want to take profit....what we have is a one sided battle with only one voice...the voice of buyers screaming that prices are still too high...sell sell sell!

to nobody's surprise, the gov't is again to blame for this mess...we are falling...free falling because of the ban....prices are deemed inflated because only 1/2 of the players are playing...longs were left to buy "normally"...but shorts have been banned from the party...they are restricted...look at the price action of the past 2 weeks since the short ban was initiated and u will see a central theme...price has moved faster, with less friction than ever before and on relatively light volume compared to the size of the moves...the first day of the ban caused a huge rally that inflated prices...and since that day, prices have not been credible...in a sound market, a selloff of these magnitutes would warrant short sellers to take profits and speculators to buy, expecting bottoms...but in the present market, these participants are nonexistant...hense the light volume...hedge funds are going broke because they lost their ability to hedge...they don't want to play in a crooked market...nobody is taking profits because there are no profits....with everyone long, there are only losses...so all we have are fearful sellers and some ignorant buyers...ppl who had shorts prior to the ban are holding, as once they sell, they lose their ability to reenter their positions...even with huge gains and wanting to take profits by buying, they can't...or atleast, it doesn't make sense to....

once the short ban is taken off, sellers will once again be pitted against the buyers and equilibrium will return...that is when we will finally get our anticipated oversold bounce...it won't place a bottom in the markets but it will return the VIX to normal levels and give traders the opportunity to sell rips and buy dips...the free market will again reign!...

one last comment is on the VIX...its fucking stupid...don't listen to it...atleast not now...pete najarian talked about it on the same day the short ban was placed and predicted that the VIX would be inflated due to the fact that puts will be bought at a much more accelerated pace due to the inability to place shorts on stocks...he actually said that 50 would be the new 30...and that is exactly where we are at now...u can't look at the VIX and say that we are due for a bounce....it is not trading normally and neither are options prices...currently options buyers are buying super expensive options (based on inflated implied volatility)...if u are an options trader, i would say to sell all options by the end of wednesday's close...once the short selling ban is lifted, VIX will fall like a rock and options premiums will go along with it...label a bubble in the vix...