August 30th, 2021 | Updated on March 5th, 2022
Capitulation is the kind of panic selling that builds momentum, causing a dramatic decline in stock prices and dropping them to a “bottom.” This floor is often near or below previous support levels. A bottom is a mythical place where almost everything looks cheap enough to buy.
The bottom, by definition, marks a turn in the market, and is followed by a broad, sustained rally. During a “capitulative” selling period, market watchers talk incessantly about whether there is enough fear in the market. The more fear there is, the more it looks like the market will hit a bottom.