True Capitulation? 80%, Bottom to be revisited? 50%

From April 29's high 1370 to yesterday's low of 1119.28, S&P 500 index retraced more than 18%, a severe correction, on the verge of 20% definition of bear market.  This magnitude is greater than 17% correction in summer of 2010.

According to Investopedia.com, Capitulation happens:

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.

Monthly Intraday Charts for SPY and SSEC: 2011-07

This is a monthly series of intra-day charts for S&P 500 (SPY) and Shanghai Index (SSEC) for July 2011.  

SPY

SSEC

US Stock Index Update

Even though last week was dubbed the best week in 2 years, the following charts show that the major indexes were just on track to get back to the upward trending channel dated back to September last year, and in fact, Dow is already in the channel, NASDAQ has touched the lower end and reversed, and S&P has not yet touched the lower end of channel yet.

DOW

NASDAQ

S&P 500

Monthly Intraday Charts for SPY and SSEC: 2011-06

This is a monthly series of intra-day charts for S&P 500 (SPY) and Shanghai Index (SSEC) for June 2011.  

SPY

SSEC

S&P 500 and Amazon Inc. (AMZN) Chart Analysis

Early last July, S&P 500 and AMZN both ended their correction and started their 1st leg up, after 5 leg run up, S&P 500 were up 33%, AMZN was up almost 90%.  Interestingly, AMZN ended the run-up in mid-Jan, one month earlier than S&P 500.

S&P 500

AMZN

Monthly Intraday Charts for SPY and SSEC: 2011-05

This is a monthly series of intra-day charts for S&P 500 (SPY) and Shanghai Index (SSEC) for May 2011

SPY

SSEC

bull market started in 2009: the past and future

The bull  market started in March 2009 is very strong, impulsive, and fast in nature, with the goal of completely reversing the 2007-2009 bear market damage in about 3 years.  This post is intended to review the 2 years track of this bull market and based on that, lead to forecasts on likely timing and levels of future pivot points.

The bear market from 2007 to 2009 lasted for just less than 2 years, but it ran pretty fast, with the most of damage done in its 3rd leg down from May 2008 of S&P 1440 to Nov 2008 of S&P 741. Using Oct 2007 high and Mar 2009 low, the fibonacci levels provide excellent hints on the ensuing bull market pivot points.

The strong bull market started in 2009 fueled by historically low interest rate lasting for extended period of time will also have 5 legs.  Its first leg took 13 months and ended right on 61.8% retracement of entire 2007-2009 bear market drop: 1228 level in April 2010, then 2nd leg ABC correction lasted for a little over 2 months, clawed back 17% on S&P 500, ended on 38.2% retracement of 2007-2009 bear market drop: 1014 in early July 2010.  Then the 3rd  strong up leg took S&P 500 up 33% to 1344 in 6 and half months.  The 4th correction leg should have ABC pattern, started in mid-Feb, it corrected 6% to 1260 level, and had an upward bias.  After this correction 4th leg, the 5th up leg will have 5 sub-legs, to forecast the possible levels of these 5 sub-legs, we will divide the range from 1200 (the 61.8% retracement of bear drop) and 1576 (the bear market top) into fibonacci levels: 1344 - 38.2%, 1388 - 50% and 1432 - 61.8%.  

One possible scenario is: 1 sub leg will last 2 months and end at around 1440 level, 2nd correction sub-leg will correct 5% to 1388 level, then 3rd up leg will start aim at around 1523 level, and also last for 2 months, 4th correction leg may touch 1440 level, then final 5th up sub-leg will reach 1576.