Capitulation

[tsptalk]

I got an email from one of our members; someone who has been loyal reader of TSP Talk for a long time (although doesn't post on the forum) but who always seemed a little unsure of things. Of course I won't give a name and this isn't intended to embarrass anyone, but it is such a great illustration of the "I give up" capitulation people feel when they are wrong for some time. The question was actually in regard to the IFT limits and what they were able to do, but I can feel the frustration.

They wrote:

"I was in F all of January….and in the beginning of February…….I should have “stayed” in F, but, I put it back in stocks….If I put it back to F now...."

We generally equate capitulation with some who is in stocks while the market is falling, and they eventually give up and sell when the losses start to get too painful. That is usually about the time the market stops falling as the final people who are left to sell, do sell, and markets stop falling when there are no more sellers (that's a very simplistic explanation).

But the email I received is an example of a bear capitulation. They sit on the sidelines missing gains and finally say, "I give up"... "I know stocks are high but I missing all of these gains and can't take it anymore."

If you "give up" early enough it can sometimes work, but if you wait for the pain, it's usually too late. When the last of the buyer holdouts buy, there's no one left to buy so the market starts to pull back. (again, very simplistic example).

Anyway, I thought it was a teachable moment.

 

[Bquat]

I got an email from one of our members; someone who has been loyal reader of TSP Talk for a long time (although doesn't post on the forum) but who always seemed a little unsure of things. Of course I won't give a name and this isn't intended to embarrass anyone, but it is such a great illustration of the "I give up" capitulation people feel when they are wrong for some time. The question was actually in regard to the IFT limits and what they were able to do, but I can feel the frustration.

They wrote:

"I was in F all of January….and in the beginning of February…….I should have “stayed” in F, but, I put it back in stocks….If I put it back to F now...."

We generally equate capitulation with some who is in stocks while the market is falling, and they eventually give up and sell when the losses start to get too painful. That is usually about the time the market stops falling as the final people who are left to sell, do sell, and markets stop falling when there are no more sellers (that's a very simplistic explanation).

But the email I received is an example of a bear capitulation. They sit on the sidelines missing gains and finally say, "I give up"... "I know stocks are high but I missing all of these gains and can't take it anymore."

If you "give up" early enough it can sometimes work, but if you wait for the pain, it's usually too late. When the last of the buyer holdouts buy, there's no one left to buy so the market starts to pull back. (again, very simplistic example).

Anyway, I thought it was a teachable moment.

Normally I would totally agree with you. This doesn't look like a last ditch effort to buy in at any costs. This looks like a minipulated buy in to pump the markets up. Looks like a silent QE3 affect or President protection team trying to keep the market bullish. None of the negative signals I have seen has worked. I could be wrong and it is just my parinoid feelings. I'm just in because dips are continuing to be bought and I can't explain why.

 

[WorkFE]

If you miss an upswing you generally are ok provided you don't by at the top and then free fall. If your in during a downturn and miss your exit it's very easy to compound that problem by jumping out.
I don't prescribe to a buy and hold mentality but you can make the problem worse by blindly selling because of fear and not understanding what your doing.
Patience is your friend.
A very teachable moment, thanks.

 

[RealMoneyIssues]

Normally I would totally agree with you. This doesn't look like a last ditch effort to buy in at any costs. This looks like a minipulated buy in to pump the markets up. Looks like a silent QE3 affect or President protection team trying to keep the market bullish. None of the negative signals I have seen has worked. I could be wrong and it is just my parinoid feelings. I'm just in because dips are continuing to be bought and I can't explain why.

It's PPT, or Plunge Protection Team, that keeps us afloat (ergo 10/4/2011 and the sharp reversal from S&P 1075).
Tom just explained it... I also posted that someone had their retired parents calling to ask where they can take their cash and put it in this great stock market. When a majority of those folks have done just that, and the big boys think it is time, they will start selling and transferring all that wealth from the Mom & Pop retail investors to themselves... that is what we have right now. The fundamentals of the global economy cannot justify how high the markets are...

 

[tsptalk]

Normally I would totally agree with you. This doesn't look like a last ditch effort to buy in at any costs. This looks like a minipulated buy in to pump the markets up.

I'm not so much talking about what the market is going to do / not do, but what goes on in someone's head while it's happening.

 

[Birchtree]

What do you think will happen when the Dow gets to 14,154 - just don't stand in the doorway or you'll get trampled. The bond market is ten times larger than the equity market and cash will flow like wine.

 

[RealMoneyIssues]

What do you think will happen when the Dow gets to 14,154 - just don't stand in the doorway or you'll get trampled. The bond market is ten times larger than the equity market and cash will flow like wine.

And what will you do if it hits 8,000 before it goes to 14,154?

 

[KevinD]

I was 100 G on Jan. 1 and the market just kept going. By the 17th I felt I was being left behind so I took a 60% position (30C/30S).

Not taking an "all in" position helped first to ease my mind and then I was able to look at the situation from a clearer perspective.

Later on Jan. 24th I went 100 L2020, the anxiety is gone and I'm trying to figure out my next move.

Keeping a clear head is hard to do.

 

[nasa1974]

I fought off that fear last year. It almost got overwhelming. I had hit my high for the year in early July and then the market started to drop. I was afraid to use an IFT because I felt I would miss the up swing that would come any day. Then the hole got so deep I didn't know what to do so I kept riding the down elevator. I stayed a B&H'er because I was afraid if I moved my money around it would make things worse. My low point was a -15.6% YTD and 22.07% off my high point. October helped get me out of the hole but I never recovered that high point. I hope I react different next time.

 

[KevinD]

And what will you do if it hits 8,000 before it goes to 14,154?

Buy wall flowers?

 

[jkenjohnson]

I got an email from one of our members; someone who has been loyal reader of TSP Talk for a long time (although doesn't post on the forum) but who always seemed a little unsure of things. Of course I won't give a name and this isn't intended to embarrass anyone, but it is such a great illustration of the "I give up" capitulation people feel when they are wrong for some time. The question was actually in regard to the IFT limits and what they were able to do, but I can feel the frustration.

They wrote:

"I was in F all of January….and in the beginning of February…….I should have “stayed” in F, but, I put it back in stocks….If I put it back to F now...."

We generally equate capitulation with some who is in stocks while the market is falling, and they eventually give up and sell when the losses start to get too painful. That is usually about the time the market stops falling as the final people who are left to sell, do sell, and markets stop falling when there are no more sellers (that's a very simplistic explanation).

But the email I received is an example of a bear capitulation. They sit on the sidelines missing gains and finally say, "I give up"... "I know stocks are high but I missing all of these gains and can't take it anymore."

If you "give up" early enough it can sometimes work, but if you wait for the pain, it's usually too late. When the last of the buyer holdouts buy, there's no one left to buy so the market starts to pull back. (again, very simplistic example).

Anyway, I thought it was a teachable moment.

Sounds more like frustration than capitulation - my two cents worth.

 

[KevinD]

I'm tired of being wrong. About ready to throw in the towel....

 

[clester]

I'm tired of being wrong. About ready to throw in the towel....

Patience. I too am frustrated but that is what the market wants.

The keys is to not look back and second guess your trades. I did that a lot and it ends up making you crazy. Just look forward and stay with your system.

I think a lot of folks threw in the towel today and bought. They probably will tomorrow too. But this seems like a blow off top to me. It's about over. The contrarian view. I bet the sentiment survey goes way positive and gives a sell for next week.

 

[Nordic]

Patience. I too am frustrated but that is what the market wants.

The keys is to not look back and second guess your trades. I did that a lot and it ends up making you crazy. Just look forward and stay with your system.

I think a lot of folks threw in the towel today and bought. They probably will tomorrow too. But this seems like a blow off top to me. It's about over. The contrarian view. I bet the sentiment survey goes way positive and gives a sell for next week.

Agreed, it does have that feel to it. Then again, I've been saying that for two months... I caught today's gain, but have missed most of this year's gains waiting for the correction. It's been frustrating trying to wait it out.

 

[KevinD]

Thanks. The voices almost had me.

 

[RealMoneyIssues]

I'm tired of being wrong. About ready to throw in the towel....

Patience. I too am frustrated but that is what the market wants.

The keys is to not look back and second guess your trades. I did that a lot and it ends up making you crazy. Just look forward and stay with your system.

I think a lot of folks threw in the towel today and bought. They probably will tomorrow too. But this seems like a blow off top to me. It's about over. The contrarian view. I bet the sentiment survey goes way positive and gives a sell for next week.

Agreed, it does have that feel to it. Then again, I've been saying that for two months... I caught today's gain, but have missed most of this year's gains waiting for the correction. It's been frustrating trying to wait it out.

Absolutely... and if it happens, there will be a lot of screaming... Does anyone remember last July/August?

 

[Bullitt]

Geez. I hope this person isn't losing sleep over this stuff. He should try sticking with a system if it's giving him that much heartburn.

 

[Bullitt]

I have a feeling short selling isn't dead. We'll see what happens to all those newly exposed zombie companies once the VIX gets below 20.

Hedge fund Lansdowne Partners has made a big call on the outlook for stock markets by stopping short-selling in its flagship $2.8bn fund.

Trillions of dollars of central-bank stimulus has lifted prices of assets across the board. Companies that might otherwise have gone bust have instead benefited from very cheap financing, making it hard for managers to pick out the next bankruptcy or to bet against overpriced stocks. Part of the reason given by Lansdowne’s Peter Davies for stopping shorting was that if the Covid-19 shock does not expose dud companies, then what will?

https://www.ft.com/content/3316b3b8-4644-4752-8fcb-107dbe0a0a98