Big move up today - check second article here - bear capitulation ?
From RevShark at the street.com -
Breakouts Galore
5/12/03 02:56 PM ET
Going into the closing hour of trading, we have breakouts galore, over 400 new highs, decent volume (at least on the Nasdaq), and the markets are trading near the highs of the day.
That sounds like a pretty powerful set of facts, but what makes it even more powerful is that there are lots of skeptics on the sidelines who are hating this move. They have a ton of good reasons why this market should die a quick and painful death, but the bulls just aren't paying attention. A healthy supply of disbelievers is all the market needs to keep moving higher.
One of the single most important things I've learned in the years I've been trading is how easy it is to underestimate the power of momentum. Some of the best and most sophisticated traders I know are consistently early in anticipating turning points. Why is that?
I would guess it's because no matter how familiar you are with the market, you can never quite get comfortable with seemingly irrational behavior. A lot of market action is nothing more than pure raw emotion, and it just isn't possible to objectively measure it. How can they keep buying when it seems so painfully obvious that we are extended?
Don't underestimate the power of irrationality. It is certainly prudent to take some profits into this sort of strength, but don't be too quick to anticipate the end of this uptrend.
No positions in stocks mentioned.
A Turning Point?
5/12/03 01:50 PM ET
The "C-word" has been making the rounds today. Usually we hear talk of capitulation at market bottoms, but the concept is equally applicable on the upside.
Capitulation is simply the point where the disbelievers can't take it anymore and decide to join the party. The theory is that when the diehards throw in the towel and finally admit that they are wrong, then a turning point is near.
One of the problems is that there is no real clear definition of capitulation, so its always a bit of a guess. Typically what you are looking for is a big final burst of action after a fairly long trend. Big volume and a big move after a long uptrend would probably be signs that some of the more stubborn bears are giving up and have decided they have to be in this market at almost any cost.
So does the action today qualify as a capitulation top? It is a big move but volume isn't particularly huge. Breadth is close to 2 to 1 positive, but what is really amazing is that we have 415 new 12-month highs to only 17 new annual lows. That tells us that the buyers are chasing the stocks that are at highs, and that is capitulation-type action.
Overall, it does look like we have some panicky buying, but I'm not sure it is sufficient to deem it capitulatory. It certainly feels like it's a bit late in the party, but there continues to be too much momentum to feel comfortable that a big reversal is forthcoming.
No positions ins tocks mentioned |
