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.
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.Some other investor professionals also require more than 10% drop in major company's stock price or better, major indexes, yesterday Bank of America's price dropped more than 20%, Financial ETF (XLF) dropped more than 9%, S&P 500 itself dropped 6.66%, Nasdaq dropped 6.9%. All these factors plus the fact that S&P is on the verge of 20% edge that distinguishes bull market correction from bear market. It's very likely yesterday was the true capitulation i.e. the bottom, the likelihood is 80%.
Now the next question is will that bottom be revisited in the near future? I give it a 50% chance right now.
