I trade only if there's a high probability of success, and even then, things sometimes go wrong. And when they do, it's difficult not to get emotional about it. But hey! If you have a flawless system, I'm all ears!
You poor guys who aren't long must be shell-shocked. The $VIX just keeps plunging. The next opportunity to short is around 1090 in the S&P, maybe higher. That's a long way up!
The chart above reveals two key factors: 1) Based on P/E ratios, the stock market is grossly overvalued, even at current prices. As per Standard & Poor's research, the Q3 2009 P/E ratio is 138.97. Historically, a P/E ratio north of 20 is viewed as expensive. Also, historically, the market almost always corrects within a year of a 20+ P/E ratio. Imagine the impact of a 140 P/E ratio. 2) The chart clearly shows that the stock market does not bottom unless P/E ratios completely reset (indicated by the red line). This was true in the 40s, 50s, 70s and 80s. In 2002 valuations were not reset. As we now know, the 2002 lows did not last. Earlier this year, valuations were not reset either. The implications are clear. Just as ice does not thaw unless temperatures rise above 32 degrees, the stock market does not bottom unless P/E ratios (and dividend yields) fall below the reset levels, which in turn triggers a sustainable rally.