Market Capitulation is usually the sign of a bottom. This is when all the bulls just give up and sell. Most traders and investors have been waiting for this moment for months. It signals to them that it is safe to buy stocks. It has not happened. What is it called when the bears give up and just buy? We will call it "Reverse Capitulation". Did you know that 74% of all the available SPY ETF were shorted the last couple months. The SPY is the ETF on the S&P500 index. This means everybody and their mother was betting stocks would go down. The violent reversal on Tuesday was what we would call a "Reverse Capitulation". All the shorts are battered and are close to giving up or have given up. Is this the sign of a bottom or a sign that things will get worse? We are not sure, it will definitely eliminate buyers (shorts they would eventually cover) and that just leaves the bulls. We now have 4 groups. Those that have given up completely and pulled their money out, The shorts who have given up, The bulls who are spent, and the computers who jump any way the market is going. So where is the market for potential buyers?
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