Showing posts with label capitulation. Show all posts
Showing posts with label capitulation. Show all posts

Thursday 29 March 2012

Capitulation – Panic Selling

Capitulation is best summarized as panic selling. Capitulation is the final phase in an extreme downtrend when stock owners are willing to sell out at any price. Capitulation is the end of a downtrend as a result of this panic selling. During capitulation, there is almost a complete lack of buyers, which creates a vacuum of selling.

Example of capitulation:



This index saw capitulation as prices moved lower and accelerated in their descent. Capitulation ends with a volume climax as price moves virtually straight down.

Capitulation is the opposite of a parabolic uptrend, and often marks a lasting low on extremely heavy volume.


http://www.thestockbandit.com/capitulation/

Read also:

Parabolic – Parabolic Uptrend Stock


http://myinvestingnotes.blogspot.com/2012/03/parabolic-parabolic-uptrend-stock.html

Thursday 6 October 2011

Capitulation: Hurry the ship is sinking everyone jump off!


Capitulation: Hurry the ship is sinking everyone jump off!

stock market capitulationCapitulation is what occurs when people in the stock market       panic and start selling all of their stocks. This is typically defined by a decline in the markets of at least 10% in one day.
While this may sound like a very bad thing, it can become a positive thing as well if you are a wise investor. This is because after the panic sell off, a knowledgeable investor can buy some quality stocks at bargain prices.

It should be said that investors do not capitulate very often. The worst example was thestock market crash of 1929. It took 25 years for the markets to return to their pre-crash levels. Many things have changed since then to regulate the markets better so a similar crash is not likely. The next closest example would be in 1987 when the markets dropped 20% in one day. However, that time it only took 1.5 years for the markets to return.

http://www.lucky-dog-investing.com/capitulation.html

Capitulation - Panic Selling

This index saw capitulation as prices moved lower and accelerated in their descent.  Capitulation ends in a volume climax as price moves virtually straight down.

Capitulation is the opposite of parabolic uptrend, and often marks a lasting low on extremely heavy volume.


Capitulation is best summarised as panic selling.  Capitulation is the final phase in an extreme downtrend when stock owners are willing to sell out at any price.  Capitulation is the end of a downtrend as a result of this panic selling.  During capitulation, there is almost a complete lack of buyers, which creates a vacuum of selling.  


http://www.thestockbandit.com/capitulation/

Connecting Crashes, Corrections And Capitulation

Connecting Crashes, Corrections And Capitulation

Posted: Jul 30, 2010

James Hyerczyk

Investors and traders face many obstacles in their quest for profits. Throughout even the longest uptrends, investors experience declines against the main trend. These are referred to as corrections. At other times, markets correct more than expected in a short period of time. Such occurrences are called crashes. Both of these can lead to a misunderstood situation called capitulation. We’ll look at these three concepts, their connections and what they mean for investors. (To learn more about market direction, read Which Direction Is The Market Heading?)

Wall Street’s White Flag
In stark terms, capitulation refers to market participants' final surrender to hard times and, consequently, the beginning of a market recovery. For most investors, capitulation means being so beaten down that they will sell at any price. True capitulation, however, doesn’t occur until the selling ends.

When panic selling stops, the remaining investors tend to be bottom fishers and traders who are holding on for a rise. This is when the price drop flattens into a bottom. One problem with calling the bottom is that it can only be accurately identified in hindsight. In fact, many traders and value investors have been caught buying into false bottoms only to watch the price continue to plunge - the so-called falling knife trap. (Traders can try to trade this phenomenon. Check out Catching A Falling Knife: Picking Intraday Turning Points for more.)

Capitulation or Correction?
When and where a market should bottom is a matter of opinion. To long-term investors, the series of retracements inside of a long-term uptrend are referred to as corrections in a bull market. A bottom is formed after each correction. Each time the market forms a bottom in an uptrend, the majority of investors do not consider it capitulation, but a corrective break to a price area where investors want to reestablish their long positions in the direction of the uptrend. Simply put, early buyers take profits, pushing the stock low enough to be a value buy again.

An investor can tell a correction from capitulation only after the trend has turned down and the downward break has exceeded the projected support levels and established a new bottom from which to trend up again. The question should not be whether capitulation is taking place, but whether the market has, in fact, bottomed.

Connecting to Crashes
A crash is a sharp, sudden decline that exceeds previous downside price action. This excessive break can be defined in real dollars as a market percentage or by volatility measures, but a crash typically involves an index losing at least 20% of its value. (To learn more, read The Crash of 1929 – Could It Happen Again?)

A crash is distinct from capitulation in two important ways. First, the crash leads to capitulation, but the time frame of the actual crash doesn’t necessarily mean capitulation will follow immediately. A market may hit capitulation – and the bottom – months after the initial crash. Second, a crash will always end in capitulation, but not all capitulations are preceded by a market crash.

In the long view, a crash occurs when there are substantially more sellers than buyers; the market falls until the there are no more sellers. For this reason, crashes are most often associated with panic selling. Sudden bearish news or margin call liquidations contribute to the severity a crash. Crashes usually occur in the midst of a downtrend after old bottoms are broken as both short sales and stop-loss orders are triggered, sending the market sharply lower. Capitulation is what comes next. (Learn more about buying on margin and margin calls in our Margin Tutorial.)

Finding the Bottom
A bottom can occur in two ways. Short selling can cease or a large buyer can emerge. Short sellers often quit shorting stocks when the market reaches historical lows or a value area they have identified as an exit point. When buyers see that the shorting has stopped, they start chasing the rising offers, thereby increasing a stock's price. As the price begins to increase, the remaining shorts start to cover. It is this short covering that essentially forms the bottom that precedes an upward rally.

As mentioned, the emergence of a large buy order can also spook shorts out of the market. It is not until the trend turns up, however, that one can truly say that buyers have emerged and capitulation has taken place. Large buyers occasionally try to move the market against the fundamental trends for a variety of reasons, but, like Sisyphus and his boulder, their efforts will fail if the timing is wrong. In timing capitulation, investors have to choose between going long on a rally started by short-covering or getting back in when actual buying – and the bottom – has been established. (For more, see Profit From Panic Selling.)

Catching the Turning of the Trend
Technical analysis can help determine capitulation because subtle changes in technical indicators such as volume are often heavily correlated with bottoms. A surge in volume is an indicator of a possible bottom in the stock market, while a drop in open interest is used in the commodity markets. Trend indicators such as moving average crossovers or swing chart breakouts are ways that chart patterns can help identify when a bottom or a change in trend has taken place.

Tricky Terminology
Crashes and capitulations are most often associated with equities, and the language is slippery. If we use percentage moves to determine whether a crash or capitulation has taken place in the stock market, then why is a downward move of over 20% in the commodities market always called a correction rather than a crash?

Moreover, one market event can also act as a crash, correction and capitulation. For example, a gradual break from 14,000 in the Dow Jones to 7,000 can be called a 50% correction of the top, but if the market drops the last 2,000 points in a short period of time, it will be called a crash. If the Dow then makes a bottom at 7,000, it will be called capitulation.

Real-World Crashes and Capitulations
Good historical examples are the Black Mondays of 1929 and 1987. In both cases, investors ran for the exits, producing big market drops. In 1929, the drop was prolonged as bad economic policies aggravated the situation and created a depression that lasted until World War II. The crash occurred in 1929, capitulation occurred in 1932, and then the actual rally occurred despite the economic conditions at the time. (For more, see What Caused The Great Depression?)

In 1987, the drop was painful, but stocks started to climb within the next few days and continued until March 2000. Surprisingly, the sudden drop in the stock market in October 1987 was called neither a capitulation nor a crash. Other euphemisms such as "correction" were used at the time. While some people realized what had occurred, it took the media years to label the event correctly. (For related reading, check out October: The Month Of Market Crashes?)

Bottom Line
After studying price movement, one can conclude that crashes and capitulation are parts of the same process. When a bottom occurs, traders can buy into the uptrend and watch the new support and resistance zones form as they navigate the rally until the next downtrend. So for them, it represents an opportunity. Long-term investors can also benefit from capitulation by getting into value stocks at extremely low prices. So, even though crashes, corrections and capitulations are bad news for investors holding the stock, there are still ways to profit. (Should you get out of a stock after a drop? Read When To Sell Stocks and To Sell Or Not To Sell for more.)

by James Hyerczyk
James A. Hyerczyk is a registered commodity trading advisor with the National Futures Association. Hyerczyk has been actively involved in the futures markets since 1982 and has worked in various capacities within the futures industry, ranging from technical analyst to commodity trading advisor. Using Gann theory as his core methodology, Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. Hyerczyk is a member of the Markets Technicians Association and holds a master's degree in financial markets and trading from the Illinois Institute of Technology.


Read more: http://www.investopedia.com/articles/analyst/080702.asp#ixzz1ZzbPyTOR

PANIC SELLING: Almost every market crash is a result of panic selling.

Panic Selling

What Does Panic Selling Mean?
Wide-scale selling of an investment, causing a sharp decline in price. In most instances of panic selling, investors just want to get out of the investment, with little regard for the price at which they sell.

Investopedia explains Panic Selling
The main problem with panic selling is that investors are selling in reaction to pure emotion and fear, rather than evaluating fundamentals. Almost every market crash is a result of panic selling. Most major stock exchanges use trading curbs and halts to limit panic selling, to allow people to digest any information on why the selling is occurring, and to restore some degree of normalcy to the market.


http://www.investopedia.com/terms/p/panicselling.asp#ixzz1ZxNKo0ai

Wednesday 5 October 2011

After Selling Stocks, 'Wait for Capitulation': Strategist


After Selling Stocks, 'Wait for Capitulation': Strategist

By: Patrick Allen
Published: Thursday, 11 Aug 2011 
CNBC EMEA Head of News







Having gotten out of stocks in April this year, one strategist is warning investors not to increase exposure to them until "the real selling capitulation[cnbc explains] takes place," and gold and the Swiss Franc begin to decline.



“We think that the markets are overreacting in terms of economic slowdown,” Bruno Verstraete, the CEO of Nautilus Invest in Zurich told CNBC on Thursday. “The biggest fire is still Europe. It would only be logical to see more triple-A downgrades.”

“The European storm will only stop when Germany is willing to accept a higher yield and lower rating. Euro bonds will be the sole savior,” said Verstraete.

The big question is whether the current market volatility and selloff is a sign of a meltdown for the system, but Verstraete believes the Chinese could come to the rescue.

“Is there a risk for a system meltdown? Yes, but rather limited as it is a universal problem and so far China has not really helped out its customers a lot," he said.

Given the currency reserves they have at hand, their firepower is a multiple of that of the European Central Bank, Verstraete said.

Having watched events in Europe and the debt ceiling talks in Washington, Verstraete believes much of the current uncertainty has been manufactured by the politicians.
“They all say it is time to act," he said. "The market does…only faster."








© 2011 CNBC.com

Correction: CNBC Explains


Correction: CNBC Explains

Published: Friday, 5 Aug 2011 
By: Mark Koba
Senior Editor
A correction may sound like it means something is getting 'fixed' on Wall Street, but actually it's a word used to describe both a trigger for financial losses, as well as buying opportunites for investors.

New York Stock Exchange
Timothy A. Clary | AFP | Getty Images
A concerned trader on the floor of the New York Stock Exchange.



So what is a correction? How does one come about? What does it mean for the stock market? CNBC explains.

What is a correction?

A correction is a decline or downward movement of a stock, or a bond, or a commodity or market index.


In short, corrections are price declines that stop an upward trend.

Why do corrections happen?

Stocks, bonds, commodities, and everything else traded on the markets never move in a straight line, either up or down. At some point their value will change—for better or worse.

When stock or bond prices go up, it may seem like there's no end to how high they can go. When this happens, stocks or bonds become 'overbought.' That means some investors will try to buy into the rise of stock prices with the hope of making profits before a downward trend begins.

But as they do buy in, the investors who bought earlier—helping to push the stock or bond price up—will consider selling when they think the price is near a peak. Investors might base their thinking on an earnings report for a certain stock that shows flat profits, or a belief that a certain industry will face trouble. Any kind of 'bad' news can trigger a sell-off.

And sometimes, investors will simply take profits as the market heats up. In either case, the selling pressure drives prices down.

How long do corrections last?

Corrections generally last two months or less. They usually end when the price of a stock or a bond 'bottoms out'—for example, some will point to a stock reaching a 52-week low—and investors start buying again.

How is a correction different from a bear market or "capitulation"?

A correction is shorter in length and generally less damaging to investors than a bear market. A bear market happens when equity prices keep falling and investors keep selling into a downturn of 20 percent or more for the overall market.

The difference between a capitulation and correction is simply that a capitulation is more severe. A capitulation [cnbc explains] , is said to occur when investors try to get out of the stock market as quickly as possible. It's also described as panic selling. Capitulation usually is based on investor fears that stock prices will plunge even further than the current low levels.

Bottoms—or the lowest price for a stock or market index—are formed more quickly in corrections than in capitulations.

Is a correction good for the market?

Many investors and analysts look at corrections as a necessary 'evil' to cool off an overheated stock or bond market. This is to prevent a huge sell-off or 'bubble burst,' as what happened with Internet stocks in 2000-2001.

It's believed that corrections adjust stock prices to their actual value or "support levels," and so, are not overpriced or inflated.

Many short-term investors look at corrections as a buying opportunity when the stock or the overall market has reached a bottom or the lowest price level. Their buying helps push the price back up and stops the correction.

What is an example of a correction?

Corrections are fairly common. We can look at the S&P Index to see one.

As the chart below shows, the S&P 500 closed at 1,363.61 on April 29, 2011, its highest level since June 5, 2008.

On Thursday, Aug. 4, 2011, at 11:26 a.m. ET, the S&P 500 hit a low of 1,225.95, entering “correction” mode, defined by a drop of 10 percent or more.


© 2011 CNBC.com

Capitulation: CNBC Explains


Capitulation: CNBC Explains

By: Mark Koba
Published: Thursday, 4 Aug 2011
Senior Editor




Traditionally, the word capitulation describes a surrender between fighting armies. What is capitulation when it's used on Wall Street? What does it signify? We explain.



cnbc.com


What is capitulation?

In simple terms, capitulation is when investors try to get out of the stock market as quickly as possible and look for less risky investments. It's also described as panic selling. It's usually based on investor fears that stock prices will fall further than they have.
Capitulation is usually signaled by a decline in the markets of at least 10% in one day.

In getting out of the market, investors give up any previous gains in stock price. That means they take a financial loss, just to get out of stocks. The thinking is: take a smaller loss now rather than a bigger one later.

Real capitulation involves extremely high volume—or high numbers of traded shares—and sharp declines in stock prices.

Why do investors capitulate?

Suppose a stock starts dropping in price. There are two choices. Investors stick it out and hope the stock begins to appreciate—or they can take the loss by selling the stock.

If the majority of investors decide to wait it out, then the stock price will probably remain stable. But if the majority of investors decide to capitulate and give up on a stock, they start selling and that starts a sharp decline in a stock's price.

Are there any benefits from capitulation?

Only for those buyers ready to swoop in.  After capitulation selling, common wisdom has it that there are great bargains to be had in the stock market. Why? Because everyone who wants to get out of a stock, for any reason, has sold it. The price should then, theoretically, reverse or bounce off the lowest price of the stock.
In other words, some investors believe that capitulation is the sign of a bottom and a chance to get stocks at a cheaper price than before the capitulation took place.

Is capitulation a way to gauge the markets?

Not at all. Capitulation is very difficult to forecast and use as a way to buy or sell stocks. There is no magical price at which capitulation takes place. Certainly during the trading day, stock prices and volumes are monitored and some measurement is used to determine if a capitulation is taking place and will remain so at the end of the day.

But most often, investors and market watchers look back to determine when the markets actually capitulated and see how far stocks have fallen in price for that one day of trading.

When have there been capitulations?

The stock market crash of 1929 that helped lead to the Great Depression, is a capitulation. In fact, it had more than one day of it.

On Oct. 24, 1929—what's known as Black Thursday—share prices on the New York Stock Exchange collapsed. A then-record number of 12.9 million shares was traded.

But more was to follow. Oct. 28, the first "Black Monday," more investors decided to get out of the market, and the slide continued with a record loss in the Dow for the day of 38 points, or 13 percent.

The next day, "Black Tuesday," Oct. 29, 1929, about 16 million shares were traded, and the Dow lost an additional 30 points.

More recently, there was a massive sell off or panic selling of stocks  on Oct. 10, 2008, in what can be considered a capitulation. Not only U.S. stocks, but global markets had major declines of 10 percent or more on one day.

Investors flooded exchanges with sell orders, dragging all benchmarks sharply lower. It's believed fears of a global recession and the U.S. housing slump sparked the sell-off.

© 2011 CNBC.com

Capitulation


What Does Capitulation Mean?
When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into less risky investments. True capitulation involves extremely high volume and sharp declines. It usually is indicated by panic selling.

The term is a derived from a military term which refers to surrender.


Investopedia explains Capitulation
After capitulation selling, it is thought that there are great bargains to be had. The belief is that everyone who wants to get out of a stock, for any reason (including forced selling due to margin calls), has sold. The price should then, theoretically, reverse or bounce off the lows. In other words, some investors believe that true capitulation is the sign of a bottom.


Read more: http://www.investopedia.com/terms/c/capitulation.asp#ixzz1ZsUZ26of

Sunday 7 November 2010

Rational Thinking about Irrational Pricing

Depressed investors cause depressed stock market prices.

Selling pressure mounts and drives prices down.  Investors possessing even modest degrees of aversion to loss capitulate quickly, and the less fearsome succumb soon after.

A downward spiral ensues.

Value investors avoid these scenarios by forming a clear assessment of their averseness to loss.  

Only having assessed this characteristic honestly do they brave the choppy waters of stock picking.  

One way to grasp one's own loss aversion is to recognize that most people experience the pain of loss as a multiple compared to the joy of gain.  The average person greets losses with aversion on the order of about 2.5 times their reception of winnings.

The greater one's loss aversion, the greater value investing's appeal.  For the most acutely loss-averse investors, pure value investing is most suitable (Graham was extremely risk averse).

Sunday 3 May 2009

Sentiment curves

How To Interpret What Your Dealers & Remisers Are Saying








An "expert" used to say " market looks like will go up but fear it will correct".

Ref: http://malaysiafinance.blogspot.com/2009/04/how-to-interpret-what-your-dealers.html




Other sentiment curves








Also click:
Capitulation - the point when everybody gives up.

Thursday 13 November 2008

Capitulation - the point when everybody gives up.












Sunday, 12 Oct 2008
Identifying Capitulation: How to Tell We've Hit Bottom




Posted By:Daryl Guppy



Are we there yet? This is the key question and it relates to finding the bottom of the market.



In many ways it's a pointless question. Even if we could identify the turning point in the market with a high level of certainty, there are very few people with the courage to enter at these low points.



The more important thing to look for are the features that will help to identify, first, the end of the market fall and second, the development of a market recovery. These two events may be separated by a few months, or by many months.



There are two important features that identify climax selling. The first is the rapid acceleration in the speed of the market fall. Like a Stuka dive-bomber, the market first rolls over slowly and then plunges in a vertical dive. This is fear at work.



The second feature is a massive increase in volume. This is panic. Ordinary people are desperate to get out of the market. Generally the funds and institutions got out of the long-side of the market many months ago. The selling in January and February was dominated by institutions and funds. The current panic selling is thousands of small orders from retail investors desperate to get out of the market.



During the bear market collapse, volumes decline. Fewer people want to buy stock so volatility increases because small trades have a disproportionate impact in a shallow market.



This selling climax shakes out all the weak hands in the market. It kills the margin speculators. It wipes out those who have finally lost patience. It removes the speculative money in the market because people think the risk is too great. This is also called capitulation. Everybody gives up – and it influences the thinking of a generation. My parents, who lived through the depression, could never entirely shake the idea that the market was a dangerous place.

The activity in the Dow Jones Industrial Average and other global markets shows an acceleration of downwards momentum. The massive increase in volume has not yet developed and this suggests the market bottom is not yet established. There is a high probability that markets will see a selling climax in the next 3 to 5 days. But here is the important difference.


The recovery rally after climax selling is temporary. It is part of a longer-term consolidation pattern that may last months, or even a year, and make more new lows before a new sustainable uptrend can develop. The potential shape of the recovery is shown in the chart. The bull market rebound rally follows a temporary selloff. A bear market rebound rally follows climax selling. It is a relief really, but it is not part of a sustainable trend change.



After a bear market, volumes remain low. When you lose trillions of dollars it takes a long time for spare change to start rattling around the economy again. Spare change drives the bull market because money is available for speculation.



In the immediate bear market recovery period the market is dominated by professionals. Finance industry professionals are already being laid off. The least effective are the first to be let go. Only the best will survive the employment washout in the industry and these will be the ones defining the behavior of the consolidation and recovery market.



When you trade in these market conditions you are most likely trading against these professional survivors. Education, not money, is the most important premium after the bear market.



CNBC assumes no responsibility for any losses, damages or liability whatsoever suffered or incurred by any person, resulting from or attributable to the use of the information published on this site. User is using this information at his/her sole risk.
© 2008 CNBC, Inc. All Rights Reserved



Saturday 11 October 2008

The Worst of Time and the Best of Time

It has been such a volatile week. The market has sunk so much in 1 week. It certainly is alarming for those who are holding stocks. For many this may be the worst of time. What should they do with their stocks?

On the other hand, this may be the best of time for some investors. It maybe the better time to pick up bargains in those good stocks one is eyeing for so long.

Some are waiting for the capitulation to pick up stocks. Above all, do not be the one who capitulates.

Who can predict the bottom? I can't. It is just a gut feeling that the bottom maybe near. Also the dogmatic conviction that the market is still the place to park some of my investment, however fearful it may seem at present. This soon will pass too.


Ref:
Stock Sale Considerations (Part 2 of 5)
WHY ARE YOU CONSIDERING A SALE?

The Bad News that creates a Buying Situation - Stock Market Corrections and Panics