{"id":1267,"date":"2021-12-31T08:58:04","date_gmt":"2021-12-31T03:28:04","guid":{"rendered":"http:\/\/blog.jarvisinvest.com\/?p=1267"},"modified":"2024-08-06T18:49:50","modified_gmt":"2024-08-06T13:19:50","slug":"what-is-the-capitulation-period-are-we-in-one","status":"publish","type":"post","link":"https:\/\/jarvisinvest.com\/jarvis-library\/what-is-the-capitulation-period-are-we-in-one\/","title":{"rendered":"What is the capitulation period, are we in one?"},"content":{"rendered":"\n<p>Since we have experienced consecutive aggressive FII selling on \u2018Thursdays\u2019 followed by Black Fridays, there is a windy buzz there we are all in the \u2018Capitulation period\u2019.<\/p>\n\n\n\n<p>We all are well aware that panic trading acts as a huge hole in the ship (market) which can significantly damage a market condition and burn out your capital from your portfolio.&nbsp;<\/p>\n\n\n\n<p>In the same way, there are certain undesirable situations where panic selling happens.&nbsp;<\/p>\n\n\n\n<p>And such a condition is called \u2018capitulation\u2019.&nbsp;<\/p>\n\n\n\n<p>Technically, capitulation is a condition referring to panic selling.<\/p>\n\n\n\n<p>This panic selling can be an outcome of the actions of traders including FIIs, DIIs or retail.&nbsp;<\/p>\n\n\n\n<p>When institutional investors take action, it builds up momentum in the market and causes a dramatic decline in company stock prices.&nbsp;<\/p>\n\n\n\n<p>In such situations, an investor willingly gives up all gains to exit the market due to fear and uncertainty.&nbsp;<\/p>\n\n\n\n<p>In most cases, it is observed that na\u00efve investors liquidate all or the majority of their holdings to protect themselves from the fear of the unknown.<\/p>\n\n\n\n<p>Capitulation does not build up overnight, it is a result of a series of triggered investor and trader actions.<\/p>\n\n\n\n<p>For example:<\/p>\n\n\n\n<p>When indices decline by 10%, we say \u2018Bear market\u2019 has occurred!&nbsp;<\/p>\n\n\n\n<p>But in the <a href=\"https:\/\/jarvisinvest.com\/jarvis-library\/what-is-a-bear-market-and-should-i-be-worried-when-it-happens\/\" title=\"\">bear market<\/a>, it is not necessary that your portfolio is down by 10% as well.<\/p>\n\n\n\n<p>There must be some stock when inverse correlation as well, that because you have diversified your portfolio!<\/p>\n\n\n\n<p>And for instance, if stock A in your portfolio has declined more than 10%, you as an investor are left with two options!<\/p>\n\n\n\n<p>Either to wait for a correction and average the stocks or sell your holding, book your losses and stay away from the market until you gain confidence all over again.<\/p>\n\n\n\n<p>If the majority of investors choose the latter and decide to exit their positions in the market, it can cause a dramatic fall in stock price triggering a wave and creating an illusion that there is something serious unfortunate happening expected in the economic arena.<\/p>\n\n\n\n<p>But what exactly causes capitulation?<\/p>\n\n\n\n<p>Note that Capitulation can be expected in any market condition but most often statically it is observed when the market is drifting.&nbsp;<\/p>\n\n\n\n<p>One can get a clear picture of Capitulation by analysing the trading volume with a price decline.&nbsp;<\/p>\n\n\n\n<p>If this prolongs, the market finally hit its bottom point.<\/p>\n\n\n\n<p>The great news is that, after such a steep downtrend, a robust rally is seen.<\/p>\n\n\n\n<p>So, when experts start observing such glimpses in the market, they first analyse the trend of the \u2018Fear Index\u2019 also known as \u2018Volatility Index\u2019, to get a rough estimation of the bottom of the market.<\/p>\n\n\n\n<p>The high volatility index indicated high fear and hence the parameters to look out for are trading volumes and option trading ratios.<\/p>\n\n\n\n<p>If these parameters are significant, then is an alarming \u2018Capitulation\u2019 situation expected.<\/p>\n\n\n\n<p>Experts see capitulation as an opportunity for investors with a good bargain buying.<\/p>\n\n\n\n<p>But this an often at the last phase of the situation when prices hit the bottom!<\/p>\n\n\n\n<p>And we all know that we can only predict the bottom but pin it out!<\/p>\n\n\n\n<p>Let us have a clear understanding of the signs of Capitulation in detail\u2026<\/p>\n\n\n\n<p><strong>Change In Trading Volumes<\/strong><\/p>\n\n\n\n<p>Capitulation influences trading volumes.<\/p>\n\n\n\n<p>Massive unusual volumes accompanied with price decline for a couple of days is observed and such situations usually last long.<\/p>\n\n\n\n<p><strong>Mutual Funds Cash Withdrawals<\/strong><\/p>\n\n\n\n<p>When the investors\u2019 sentiments are affected, then mutual funds take instant action.<\/p>\n\n\n\n<p>These actions are usually withdrawing the humongous amounts of cash by selling funds.<\/p>\n\n\n\n<p><strong>Derivative Trading<\/strong><\/p>\n\n\n\n<p>There is seen that during such circumstances there is a rise in participation in derivative trading by purchasing put options.<\/p>\n\n\n\n<p>This is a clear indication that traders are betting against a market rise and trying to safeguard or hedge against a further price decline.<\/p>\n\n\n\n<p><strong>Negative Sentiment&nbsp;<\/strong><\/p>\n\n\n\n<p>We have seen that there is<a href=\"https:\/\/jarvisinvest.com\/jarvis-library\/sentiment-analysis-in-stock-market\/\" title=\"\"> selling and hedging sentiment <\/a>everywhere in the market.<\/p>\n\n\n\n<p>This simply translated that investors\/traders are losing confidence in the market and its future and are in the mode of \u2018giving up\u2019 until they think markets are favourable.<\/p>\n\n\n\n<p><strong>Beware of Capitulation<\/strong><\/p>\n\n\n\n<p>The biggest drawback is that one cannot predict Capitulation<strong> <\/strong>in advance.<\/p>\n\n\n\n<p>The technical analysts usually trace Capitulation using candlestick charts, but for an abrupt change to build up takes time.<\/p>\n\n\n\n<p>And hence, no foresee for warning about Capitulation beforehand!<\/p>\n\n\n\n<p><strong>Conclusion<\/strong><\/p>\n\n\n\n<p>Spotting capitulation before it happens is next to impossible.<\/p>\n\n\n\n<p>Although, one of the major indications of capitulation, that the market has hit bottoms, an investor can take this as a literal parameter.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Since we have experienced consecutive aggressive FII selling on \u2018Thursdays\u2019 followed by Black Fridays, there is a windy buzz there we are all in the \u2018Capitulation period\u2019. We all are well aware that panic trading acts as a huge hole in the ship (market) which can significantly damage a market condition and burn out your [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":3318,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"jnews-multi-image_gallery":[],"jnews_single_post":{"subtitle":"","format":"standard","video":"","gallery":"","source_name":"","source_url":"","via_name":"","via_url":"","override_template":"0","override":[{"template":"7","single_blog_custom":"","parallax":"1","fullscreen":"0","layout":"no-sidebar-narrow","sidebar":"default-sidebar","second_sidebar":"default-sidebar","sticky_sidebar":"1","share_position":"float","share_float_style":"share-normal","show_share_counter":"1","show_view_counter":"1","show_featured":"1","show_post_meta":"1","show_post_author":"1","show_post_author_image":"1","show_post_date":"1","post_date_format":"default","post_date_format_custom":"Y\/m\/d","show_post_category":"1","show_post_reading_time":"0","post_reading_time_wpm":"300","show_zoom_button":"0","zoom_button_out_step":"2","zoom_button_in_step":"3","show_post_tag":"1","show_prev_next_post":"0","show_popup_post":"1","number_popup_post":"1","show_author_box":"1","show_post_related":"1","show_inline_post_related":"1"}],"override_image_size":"0","image_override":[{"single_post_thumbnail_size":"crop-500","single_post_gallery_size":"crop-500"}],"trending_post":"0","trending_post_position":"meta","trending_post_label":"Trending","sponsored_post":"0","sponsored_post_label":"Sponsored by","sponsored_post_name":"","sponsored_post_url":"","sponsored_post_logo_enable":"0","sponsored_post_logo":"","sponsored_post_desc":"","disable_ad":"0"},"jnews_primary_category":{"id":"","hide":""},"jnews_social_meta":{"fb_title":"","fb_description":"","fb_image":"","twitter_title":"","twitter_description":"","twitter_image":""},"jnews_override_counter":{"override_view_counter":"0","view_counter_number":"0","override_share_counter":"0","share_counter_number":"0","override_like_counter":"0","like_counter_number":"0","override_dislike_counter":"0","dislike_counter_number":"0"},"jnews_post_split":{"enable_post_split":"0","post_split":[{"template":"1","tag":"h2","numbering":"asc","mode":"normal","first":"0","enable_toc":"0","toc_type":"normal"}]}},"categories":[36],"tags":[],"aioseo_notices":[],"jetpack_featured_media_url":"https:\/\/jarvisinvest.com\/jarvis-library\/wp-content\/uploads\/2021\/12\/what-is-capitulation-period.png","amp_enabled":true,"_links":{"self":[{"href":"https:\/\/jarvisinvest.com\/jarvis-library\/wp-json\/wp\/v2\/posts\/1267"}],"collection":[{"href":"https:\/\/jarvisinvest.com\/jarvis-library\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jarvisinvest.com\/jarvis-library\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jarvisinvest.com\/jarvis-library\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/jarvisinvest.com\/jarvis-library\/wp-json\/wp\/v2\/comments?post=1267"}],"version-history":[{"count":2,"href":"https:\/\/jarvisinvest.com\/jarvis-library\/wp-json\/wp\/v2\/posts\/1267\/revisions"}],"predecessor-version":[{"id":4283,"href":"https:\/\/jarvisinvest.com\/jarvis-library\/wp-json\/wp\/v2\/posts\/1267\/revisions\/4283"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/jarvisinvest.com\/jarvis-library\/wp-json\/wp\/v2\/media\/3318"}],"wp:attachment":[{"href":"https:\/\/jarvisinvest.com\/jarvis-library\/wp-json\/wp\/v2\/media?parent=1267"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jarvisinvest.com\/jarvis-library\/wp-json\/wp\/v2\/categories?post=1267"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jarvisinvest.com\/jarvis-library\/wp-json\/wp\/v2\/tags?post=1267"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}