I got thinking about what could cause the market to rise dramatically higher and reverse this extreme oversold condition. These include
Ban on short selling. Rumour has it that the government may ban the short selling of Citigroup (C) alone, given that broker desks and hedge funds are pounding down C on the short side with impunity. It is highly unlikely the government will ban all short selling.
Reinstating the uptick rule. Probably will not happen given the practical difficulties of doing so.
Suspending mark to market. This would probably give the most fuel to a market rise, though whether it helps over any time frame longer than the very short-term is highly debatable.
The government buying stocks. Another rumour floating around is the government using TARP money to buy $10 billion worth of Citigroup common stock. The government of Hong Kong bought stocks near the bottom of the 1998 Asian panic.
A large, cash rich company making a very public buy. Microsoft (MSFT) comes to mind. Management has dismissed that Microsoft is still interested in buying Yahoo (YHOO), but they may just be letting Yahoo twist in the wind before buying. Microsoft buying back its own stock in size, given that it is trading at an 11% free cash flow and less than 6x EV/EBITDA, and being very public that they think the stock is egregiously undervalued would boost the market.
Me capitulating and liquidating everything. That would probably be the surest sign the bottom was in.