The massive reversal in the financials - XLF and BKX as well as the Russell 200o IWM indicates that the decline is over for now. There is no point in riding this out short, particularly if the government is banning short selling. Short sellers have become the biggest scapegoat for the market's demise, but while there certainly have been abuses, it is highly doubtful that short sellers have caused the housing market to collapse, banks to make risky loans and the FED to pump up the money supply to the point that inflation became rampant. As long as short selling is being done in accordance with regulations, it is a direct hit on the free market and market efficiency to disallow it. In the end, regulators will find that the market can go down and violently with or without short sellers.
Our trend following indicators are still down, but the futures are indicating more gains for tomorrow so several short exit signals may be seen tomorrow. This is one of those times that it may not be worth the wait.