9 Minute Read

Tackle Today: What Capitulation Looks Like

June 17, 2022

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«It isn’t pretty, but Thursday could have been a washout.»


You’re seeing historic things happen right now. The magnitude of the market decline is, in many instances, unprecedented. Thursday’s washout was one such example. I’ve come across loads of charts and data points illustrating how widespread the washout was. It doesn’t mean we can’t go lower, but it usually means we’ll get some reprieve from a momentum perspective. In other words, if we don’t get a strong snapback, the pace of the decline will at least slow.

What kinds of signals indicate short-term capitulation? One: a monster VIX spike to 35. Two: Extreme Breadth Readings (such as a plunge in the Advance/Decline line). Three: Extreme oversold readings (see Chart of the Day below). Four: Volume crescendo (though yesterday’s wasn’t as high as I would have liked). So far, stocks are rebounding Friday morning. Let’s hope the bounce sticks.

Video of the Day: What is Position Size in Trading

In this video, coach Gino Poore explains what position sizing in trading is and why it’s so important.

Chart of the Day: Percentage of Oversold Stocks

Chart of the Day: Percentage of Oversold Stocks (Source Source: @BespokeInvest)
Source: @BespokeInvest

According to @bespokeinvest, 90% of all the stocks in the S&P 500 are trading at oversold levels (defined as 1+ standard deviation below the 50-day moving average).

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