NO capitulation this time

Discussion in 'Trading' started by stock_trad3r, Nov 13, 2008.

  1. This idiot writes that market psychologyhas to be black in that people forget about stocks altogether:

    That may have been the case in 1982, 1974, and 1939, but not in 2002. And certainly not today with hedge funds, mutual funds, as well as constant media coverage of the stock market. ALso, the volume is staggering. You expect people to just forget about stocks and walk away? No way. The market is engrained in our conscious,

    There will be no capitulation this time around, just as there was none in 2002. There will also be no panic bottom.
  2. Which means we should expect capitulation and a panic bottom a week or so from now.

    Because, quite accurately, everything you say essentially comes true in the inverse.
  3. LOL! and so are you!
  4. Here we go again stock, obviously you were not posting here 60+ times a day in 2002, so you had zero posistions (pretty much like now). The july through october swings were unreal. There was capitulation multiple times, just as there were huge rallies. Comparing this market to 2002 is about as worthless as your "investment account".a better comparison would be 1973-74 or the last great washout 1929-32.
  5. I could not have said it better myself:D
  6. Idiot the internet bubble popped and the nasdaq crashed 70+ %. The nasdaq was at 5000 and dropped to 1000. Where is it today? Tech stocks have still not gotten back to former highs.
    There was plenty of capitulation and panic.
    And by the way the economy bottomed in 2001 and the market didn't bottom until 2003.
  7. I take the other side of your trade any day of the month.
  8. There's one thing that I think has been largely overlooked in the capitulation debate -- the impact of low-cost internet trading.

    In "the old days", middle-class investors had basically zero control over timing. Even IF it were possible to buy fewer than 100 shares at a time, the transaction costs made it effectively impossible anyway. People might have owned a hundred thousand dollars worth of stock without having ever seen realtime quotes outside their broker's office. When Black Monday hit (and crashes before that), those same people looked at the hopeless mess depicted by 20-minute delayed quotes, and did the only thing they really could... called their broker, told him to dump everything, and never looked at the stock market again a decade or more. The "pros" were left to lick their wounds, and slowly sift through the ashes.

    Fast forward 20 years. THIS time around, middle-class investors heard about the market falling earlier this year, and didn't feel quite as helpless. They had realtime quotes from their online brokerage firm, and were able to exercise some degree of damage control. The lucky ones liquidated much of their stock by summer, and had it sitting someplace liquid when the market REALLY crashed hard on September 29. Then it got interesting.

    Far from being the final capitulation, September 29 was probably the biggest day in the history of eTrade, Ameritrade, and the rest for new signups... by people who couldn't wait to get IN to the market and take advantage of the great deals. Of course, they missed all of them, because by the time anybody's new account finally got funded and cleared, it was too late... but they WERE ready on October 15.

    When the market took its second nosedive, that in past years would have been the final deathblow of the stock market for years, hundreds of thousands of bargain hunters were online within minutes having a shopping spree that ultimately drove prices back up. At the end of the day, a market that historically would have crashed, died, and stayed dead was seen staggering into Thursday insisting that it was just a flesh wound.

    By then, the formerly-capitulated figured out that even if their "old" shares were f***ed, they could at least be like the newbies, and make back some of their losses by riding the volatility. During October's last crash, they shoved the newbies aside, and grabbed plenty of their own good deals.

    Stir, rinse, repeat, and accelerate slightly to describe the past two weeks.

    There are three ways to look at it:

    * The "real" capitulation WAS mid-summer, or September 29 at the very latest. The newbie and reborn bargain hunters just accelerated the market's rebirth.

    * The newbies pushed the final capitulation date a few months away, but when it finally comes, the market's REALLY going to be left in ashes.

    * My theory: there isn't going to BE a final crash to end all crashes. The newbies and bargain hunters have injected SO MUCH *NEW* liquidity into a market that in the past would have long since collapsed from a LACK of liquidity, that the market is going to end up oscillating like a violin string... going down, going up, down, up, etc... each low getting a tiny bit lower, each high getting a lot lower, with less and less time spent at either extreme until it finally converges at a point slightly higher than one of the lows it's already reached.

    As more and more people figure out that they can semi-daytrade with stocks that wildly swing by several dollars over the course of a few days, week after week, and more and more start to pounce whenever there's a crash, the crashes are going to bounce back into the "middle ground" faster and faster, and the peaks will be lower and lower because anyone who wants the stock will decide to just wait until the next crash in a few days.

    There's one wildcard: leveraged investments forced to liquidate. IMHO, they're the reason why the prices are still slowly dropping lower every few days. They're blindly dumping so much excess stock into the market, the price can't HELP but fall, regardless of how many eager bargain hunters have limit orders waiting to pounce.

    Think about it... what sane individual investor with online trading would even THINK about blindly dumping everything he has RIGHT NOW? He might be liquidating some of his "old" devalued stock during rallies to try and raise more cash for the next crash, but by now he's seen so many crashes that they're almost a weekly routine. If he sees a crash starting, he's just going to sit on the rest of his stock until next week's high. It's the funds and institutional investors who HAVE to blindly dump 10k, 20k, or more shares of stock into an already-crashing market who are providing the best and tastiest bargains right now.

    Every stock I've been buying has had almost exactly the same "crash pattern"... fall, fall, fall, fall, then suddenly a huge clump of 10k-50k shares show up out of nowhere, and the price INSTANTLY crashes 50c-$1 or more for a few seconds until the feeding frenzy devouring them drives the price back up within a minute or two.

    Put another way, the market will quit thrashing when the forced sales by funds and institutional investors cease. When it bottoms, it'll probably stay low, with just occasional mini-rallies, for quite a while... but not for the same reason why it used to.

    IMHO, for the market to "truly" recover THIS time around, the investors don't have to "capitulate" -- they won't. Investors don't have to be convinced that the crashes are over (for now) because they're afraid of being bankrupted... they'll have to be convinced the crashes are over (for now) to induce them to pay higher prices instead of just putting in a bunch of lowball limit orders and waiting for stocks to go "on sale" again in a week or two.

    Ultimately, this market has been changed forever by the introduction of (literally) MILLIONS of new investors. Investors who could care less what Paulson thinks about "leading macroeconomic indicators", and have systematically robbed the various liquidating funds blind by taking advantage of their institutional neuroses, and eagerly buying up their assets for a pittance every time they panic after some analyst on Wall Street sneezes ;-)