Chart Spotlight

If you follow the markets or watch CNBC on a regular basis you have heard the word “capitulation” used frequently of late. Many of the pundits feel if we just had a capitulation day that would mark the bottom and spark a rally. Often a capitulation day would unfold with a significant sell off in the early hours of trading only to reverse mid-day and close positive for the day, all on strong volume. We had a couple of days in October that some labeled a capitulatory bottom (green arrows).

November 13th (blue arrow) had all the markings of capitulation, head faking us in the process. A couple data points lead us to believe we may not get capitulation to mark a bottom this time around; first is that everyone is looking for this to occur and the market is not often that accommodative, and two the orderliness of this year’s correction, although annoying, has been missing abject panic usually associated with a bottom? From my take what makes this market most difficult is that so many things have occurred that have never happened before, eliminating a potential road map of previous experience to draw from.

We feel sort of like the kid in the back seat asking every ten minutes “Are we there yet?

Did You Know…

The current bear market (defined as a drop of at least 20% of the S&P 500 stock index from a previous closing high) is the 9th bear market in the last 50 years and the 3rd where the loss has been at least 40%. The current bear’s “peak to trough” drop is 56.4%, the low close occurring just last Thursday (on 3/05/09). It took the S&P 500 index 70 months and 56 months to recover back to a new closing high following the 2 previous bears where the loss exceeded 40%. 68% of Americans anticipate they will need to postpone their age of retirement by at least 2 years as a result of the bear market (source: Money).