By "capitulation" I simply mean that all those who have been holding on, hoping to see NITE rise, finally give up, throw in the towel and sell. In other words, here capitulation means "sellers capitulated". The reason that is often constructive, is because after a capitulation everyone who wanted to sell, has already sold, and therefore it is less likely that the stock will decline further (there is no one left to sell). Under certain circumstances after a capitulation, you can still have a decline if 1)there is fundamental bad news, which gets the LT B&H money out or 2)there is a lot of shorting activity - which is basically selling pressure.
So, unless one of those two obtains, after a capitulation, the stock should stop declining. Often, a reversal will take place and the stock will climb. That climb can often be very strong and very rapid, because now that the sellers are mostly out, as the stock climbs, it is not "opposed", it does not encounter selling.
Whether a stock that has experienced capitulation, goes on to stage a reversal climb simply depend on whether buyers come in. Who are the buyers? Bargain hunters, value players. However, if the buyers stay away due to any number of reasons (such as general market conditions, or the stock is not seen as 'cheap enough' to be a compelling value), the stock will simply stall, or trade range-bound.
Morgan |
