Several weeks ago when the US Stock market was selling off with no bottom in sight we heard much of the financial populous using the term “capitulation”. Capitulation is defined by Webster’s dictionary as “surrendering or giving up”, traders characterize it as panic selling typically accompanied by large volume. Many professionals look at capitulation as a way to capitalize on another’s emotional bad decision. If the masses, “mob”, sells out then the market would have nowhere to go but up because all the sellers are gone. The theory is that it pays to contrarian.
Interesting how we really never did get this day of reckoning or “capitulation”. Instead a steady flow of relatively good news has spurred the major average up near 20% in a matter of weeks. With several weeks on a roll we have heard (not from all, but a large majority) from public officials, investment professionals and financial press that we may have seen the worst of this economic crisis.
If it pays to be contrarian then don’t you lose if you are part of the mainstream? Could the market be doing the same as capitulation but on the upside, panic buying for their jobs? Remember Wall Street suffers long term in a bear market.
President Herbert Hoover (31rst President of USA 1929-1933) on May 1, 1930 stated that United States was not through all its difficulties but he believed that United States had been through the worst (taken from The World in Depression 1929-1939 by Charles P. Kindleberger)
Red Circle Indicates End of April Beginning May 1930 Dow Industrial Average
Tags: bear, bull, chart, depression, economy, goverment, market, stock, USA
[...] not seen the worst, but interestingly the bulls hog the air time with the financial press. (see Contrarian to Mainstream in Weeks – Stock Market for more [...]