Nowhere is Wall Street's bullish bias more clear than in the rules an investor faces when "short selling" a stock -- meaning, you profit as prices fall or lose as prices rise.
The bias is evident in a host of regulations that discourage short selling. Buyers face nothing of the kind when they go "long."
This bias is most conspicuous when panic selling takes over. You may recall that the SEC went so far as to make short-selling illegal in October 2008, after major Wall Street investment banks aggressively demanded the ban. It started with a list of 799 financial stocks that investors could not short. Then the SEC added nearly 200 non-financials, including General Motors and CVS.
Just in case you're wondering, stocks did rally the day after they imposed the short-selling ban. From there, however, the major U.S. indexes began a free-fall on the order of 25%.
Short selling has been back in the news recently: regulators in major nations across Europe have already banned short sales of financial stocks. If you've kept up with Europe's unfolding financial crisis, you already know why regulators took this extreme step: in a phrase, "They know what's coming."
What they have not (and cannot) explain is why such a ban will work now when it has never worked before. But there's an even thornier question: Where will liquidity come from when the declines begin anyway?
Please don't suppose that this topic is "about" Europe only. Events there are in fact a preview. That is how the brand-new September Elliott Wave Financial Forecast sees it, specifically in a context of "bear market policies" that lead to "recriminatory actions."
We all know how angry the public has been with the lack of legal action when it comes to Wall Street's misdeeds. The Financial Forecast goes on to explain why that "lack of action" will soon turn into "here comes the judge," as the "full breadth of the financial crime wave is now appearing."
We ask and answer questions you won't read anywhere else. The September Elliott Wave Financial Forecast and Bob Prechter's video version of The Elliott Wave Theorist are online right now, with analysis, forecasts and labeled charts that will keep you ahead of the trend. Follow this link to learn more.