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Capitulation Trading: Dog Eating Your Dog Shares
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On January 22nd, I was humiliated by Carter Worth. Carter, for those unaware, is Chief Market Technician at Oppenheimer and a frequent guest on CNBC's Fast Money. He has been spot on since I can remember, and I always pay close attention to his analysis. So I guess it's not humiliating to be beaten by Carter, and I actually want to thank him for teaching me a lesson: Not every stock has rabies. On Martin Luther King Day, markets around the world were tanking while the U.S. market was closed. The anxiety was palpable, and I (like many others) couldn't wait for the Tuesday open to dump some shares and save myself from certain financial doom. The market had been going down for weeks, testing my patience and pain tolerance, and this was it--I could take it no longer. I had to get out before the crash! On January 22nd, of course, the market opened down huge (get out now!), only to rally and put in a low that lasted until early March (huh)? Eager for understanding, I was watching either Closing Bell or Fast Money, and on came Carter. He said (my paraphrase), "This was capitulation. An open like that, you don't want to be selling, you are capitulating. I want to buy those shares." Very matter of factly, Mr. Worth was telling me that I gave him my money out of panic. Carter, you're welcome. It was then that I recognized the true zero sum game of the market, the dog-eat-dog nature that rewards the smart and cool and punishes the scared and unprepared. I was behind the curve. Way behind. From a long term perspective, it was no big deal. We are lower today than we were in January. But as a trader, I missed the boat. The beauty of trading is that we can learn new tricks, and start over if necessary. Since January, there have been several days where the premarket has looked terrible. My drubbing at the hands of a professional taught me not only to avoid panic, but to see those days as opportunities--not necessarily for long term investments, but for short term trades. It happened again today. Don't get me wrong, I still think the market will work its way lower. But along the way, I'd like to take those shares that you think are dogs going the way of Old Yeller for a little walk...with my finger firmly on the trigger, of course. [Posted simultaneously on my personal blog, with pictures.] | ||
Comments (6)
great insight, surfer. At least you have a name for your humiliation!
Could tomorrow have the inverse with the fed's expected rate cut? I don't think the minutes come out until the afternoon, but doesn't the leaking start about lunchtime? Wondering about a brief, dramatic uptick.
Posted by uniqueconstraint | March 17, 2008 1:00 PM
I wouldn't be surprised by anything, much less an uptick tomorrow. As Todd Harrison of Minyanville reminds us today, "Remember, nobody makes money in true bear markets. Not even the bears."
Posted by thestocksurfer | March 17, 2008 1:06 PM
I am one of those guys that wakes at 6:30 every morning and gets a dose of what happened/is happening in Asia and Europe while I was asleep. In fact, I have it before coffee....better the news wake me up than the coffee. I am actually surprised the markets didn't get beat up today . . . but it seems that Asia and Europe follow us instead of the other way around. Granted, there are many exceptions, such as the crash in '87 starting in HK, but in mild panic situations, the open doesn't seem to set the table for the day. Let's now play a game of "guess what happens after the rate cut".
---Jonathan
Posted by Jonathan Coyle | March 17, 2008 4:02 PM
Note: On Fast Money tonight, Carter Worth said he did not consider today's action as confirming a long term market bottom, mostly because the bear market has not lasted long enough based on historical precedents. Just so you know...
Posted by thestocksurfer | March 17, 2008 7:31 PM
Good post, good show, good observation. When there is "blood on the streets and you feel like you are about to puke, that's when you buy." Was that Macke'ism or Guy?
Posted by Uncle John | March 17, 2008 8:10 PM
I've been around for several of these market corrections. We're probably in the third or fourth inning with lots more discomfort to go. Buy gold. It's about the only sure thing left in this type environment. Before this is over, stocksurfer, you will gain a black belt in investing.
Posted by Rebecca Witwer | March 17, 2008 10:27 PM