The Perfect Setup for Capitulation ~ The Risk Averse Alert

Thursday, July 09, 2009

The Perfect Setup for Capitulation

The climax of the market's present leg lower appears at hand. Bear in mind, though, the March low is likely to hold once this leg is completed.

Whether this move lower will kick off the bear market's anticipated final phase — capitulation — remains to be seen. It is in fact possible the corrective wave forming since completion in November 2008 of the bear market's panic phase is not yet complete. If so, then some wild swings might be expected over weeks ahead ... first down, and then back up.

It also remains possible that, five waves up from the March '09 low have not yet completed. However, this possibility is fading fast. Wednesday's (7.8.09) move below May '09 lows (on elevated volume, no less) appears to diminish the likelihood. Still, a final move into post-March '09 new high ground is a possibility not entirely off the table.


I just wanted to point out that, the 200-day moving average of the CBOE Put/Call Ratio's daily close is lower than any time since the bear market began in October 2007.

So, in a very objective way one might say hope waxes eternal. Which, of course, leads to a most relevant and provocative question...

Is this not the perfect setup for capitulation?

Fast Money
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