EO,
the way that I am going to play a capitulation selloff (if it comes), is to cover shorts, but I am not going to rush into committing too far on the long side. The reason for this is that the capitulation process can take a few days and you don't want to commit too early. Take a peek at other capitulation bottoms, they aren't a one day event and the following rally generally provides plenty of opportunity to get long.
April 2000
stockcharts.com[r,a]dhcaynay[d20000401,20000430][pb50!b200!b30!b20][iUb14]&pref=G
July 2000
stockcharts.com[r,a]dhcaynay[d20000701,20000830][pb50!b200!b30!b20][iUb14]&pref=G
Oct 2000
stockcharts.com[r,a]dhcaynay[d20000901,20001030][pb50!b200!b30!b20][iUb14]&pref=G
March/April 2001
stockcharts.com[r,a]dhcaynay[d20010301,20010530][pb50!b200!b30!b20][iUb14]&pref=G
September 2001
stockcharts.com[r,a]dhcaynay[d20010801,20010930][pb50!b200!b30!b20][iUb14]&pref=G
July 2002
stockcharts.com[r,a]dhcaynay[d20020701,20020830][pb50!b200!b30!b20][iUb14]&pref=G
And be watching the VIX closely. We should get a pretty significant spike at this bottom. Likely past the 57 set in July.
stockcharts.com[r,a]dhcaynay[df][pb50!b200!b30!b20][iUb14]&pref=G
The p/c ratio should spike past the level set last week. Notice that the level is rising for each susequent capitulation.
stockcharts.com[r,a]dhcaynay[df][pb50!b200!b30!b20][iUb14]&pref=G
And watch the TICK. We got to -1200 yesterday and it wasn't a capitulation. So look for an even more extreme reading. I am talking about -1500 or so.
And perhaps the most important indicator is your gut. Look for that feeling of fear in your belly. The point where you say to yourself, "there ain't no way that I am going to buy here, this selling is never going to stop". That's when you start nibbling. |
