Nice article in the WSJ and on their Marketbeat blog on the concept of Capitulation:
“The selloff that sent major indexes into bear-market territory has some investors awaiting the “capitulation” moment that signals it’s time to dive back into stocks.
It often seems like investors are looking for a road sign emblazoned “Capitulation: Three Miles.” But capitulation is one of those market paradoxes — it can’t really be quantified until those most eagerly awaiting it are themselves frightened out of the market.
“You have to picture someone on the deck of a battleship handing over a sword to an enemy, not this ‘Hey, the market’s a little tough, but I think we can get a trade on the long side’ stuff,” says Barry Ritholtz, director of equity research at Fusion IQ.
Not all signs of this vaunted event are anecdotal or ephemeral. Analysts say there are a few hard numbers that would indicate a selloff has reached a crescendo.”
We addressed this issue more completely back in 2006.
Caught in Capitulation Catch-22
Investors Are Awaiting Signs That It’s Time to Buy, But Until They Give Up and Get Out, Signals Are Mixed
July 9, 2008; Page C6
Marketbeat, July 8, 2008, 2:28 pm