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Stop Looking for Capitulation

Posted on March 6, 2009 by Adam

I keep hear people droning on about whether or not “This is capitulation?” Everybody seems so focused on whether or not today will be the day when prices wash out completley forming a bear market bottom, sending us into a roaring bull market.

If that’s what you’re looking for, just give up.

Even if we do get a big capitulation move, which we may, that doesn’t mean we have bottomed out. Real bear market bottoms take time to form - they don’t happen in one big whoosh, despite what they seem to imply on CNBC.

Before we bottom out, we’ll need to see a big contraction of all this hysteria. I’m not saying that we’re not near the lows - we may in fact be near the bottom for this bear market. However, before we can transition into a bull market, we will need to spend a good deal of time at these levels without going lower. It won’t happen in a week or a month, never mind one day.

A bottom will take months, if not years to form. We’ll need to see fear, as gauged by the VIX, to drop back to the lows of prior bull markets. Once we get there, over a long period of time, we will be in a bull market. There will be no “Capitulation Day,” that instantly causes a reversal, so stop wondering if it’s coming.

Happy Trading