A friend of mine whose analysis I respect was telling me the other day that maybe in this market crisis, there will be no "final flush-out" of capitulation selling before a bottom is formed. It could be just a rolling, consolidating, choppy bottom forming now. Everyone expecting a capitulation day has perhaps changed the market so that it won't happen. Thoughts?
I don't expect a big capitulation. I expect a slow burn. A lot of people who lost money in their stock funds are already down by 50%. What's the rush to get out? There is no lack of people who rarely invest now itching to put their money in to buy this depressed market. I think that the market will just gradually drifted lower without much firework. But of course... some unexpected event will drastically change the picture, such as a dirty bomb exploded somewhere.
I've mentioned before that shortly after the start of the bull run beginning in March 2003, quite a few talking heads were saying "we need capitulation, a puke point, this is a huge sucker rally since we haven't had capitulation," etc. "Capitulation" may be something to look for, and perhaps it will make people feel safer dipping their toes in, but it is not a requirement to end a bear market.
Too many people think we are close to the bottom (we are not)and are buying in small increments, trying to be clever. There will be a few capitulation days before this is over, the thing is that at least the 1st few won't mark the bottom as expected (too many waiting to cleverly buy on the big dip). The bottom will have come when the stock market fades from the news and no one has any interest in investing in equities anymore.
We'd need a Businessweek cover titled "The death of free enterprise" for a potential bottom in equities
Correct. When cab drivers & hair stylists stop repeating that this is the bottom or we're near the bottom, then and only then will we be anywhere near a bottom. On that note; Many seem to believe there will be a sharp recovery and all will back to normal in a snap. Far from true. Bottom Formations; V Shaped Not sustainable, reactionary, fade it. U Shaped Better, but the length of the U shape is subjective. Choppy at best, not known until recovery is well underway. Its good to look back and see this as confirmation. L Shaped Very well what we'll get this time. Long, painfully slow multi-year to decade long recovery. Sure, there will be bright spots here and there, but overall an L Shaped bottom is a looooong wait. Comments?
i agree with the OP in some ways. i expect there to be a capitulation "bottom" point, but then expect there to be a grind-em-out period of years which will sap the energy out of most buy-and-hold people. the 70s were like that. the 30s were like that. the late 19th century was like that. i'm just taking a page from history.
The market will surge 20% in a single week and that will market the bottom. All further bad news will be priced in and the market will steadily climb a very high wall of worry, decimating short sellers along the way. This rally will last for years.
A lot of people are calling for an intermediate bottom. Not a final bottom. Timing this intermediate term bottom correctly could net probably in the range of 30-70%.