Definition of Capitulation
What is the definition of "capitulation" or "capitulation selling"?
How does this meaning apply to the stock market?
I don't need to tell you that the last few years have not been very kind to the stock market.
Sell-offs. Missed earnings. Bailouts. The list goes on and on.
During the last few years, you have probably heard the term "capitulation" being used often.
The dictionary defines capitulation as "the act of surrendering or giving up".
Capitulation, as it applies to the stock market, is no different.
Capitulation selling comes about when investors simply give up.
They want out of the market, and they want out NOW.
This may be a personal choice (for instance, they just don't want to be invested in the markets anymore) or this may be due to forced selling.
Whatever the reason, they are selling first and asking questions later.
Many investors look for signs of capitulation selling as a great entry point into a particular stock or the markets in general.
Panic selling usually results in great deals being exposed as stocks are oversold.
For instance - Google may trade lower 100 points in just a single session due to panic gripping the markets. Investors are selling ALL of their holdings, and are just desperate to get out of the markets.
This may result in some really strong companies being sold off, which will in turn create some really great deals.
Example: Post 9/11.
Investors were extremely jittery in the aftermath of 9/11, and wanted out of the markets at any cost. They sold anything and everything and didn't think twice about it.
Many quality stocks were beaten down due to the incredible amount of capitulation selling that was taking place in the aftermath of the terrorist attacks.
Investors simply gave up on the market and wanted out at any cost. This is a prime example of capitulation or panic selling.
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