Capitulation - Stock Market Reached On Monday

Capitulation Moment?

Whenever the market corrects or falls into a bear market, investors are always trying to spot the bottom to make a quick profit. The American stock market has had the best real returns out of any country’s stock market in the past 100 years. 

It’s not a given that stocks will always have great real returns. But it’s not outlandish to expect short term and medium term rallies after big declines. Especially such as the rally in Q1 2019 after the decline in Q4 2018. In a previous article, I mentioned that the stock market could fall a bit more after the decline on Monday.

One point which counters that notion is the fact that 90% of the NYSE volume on Monday was to the downside. That’s the first time that happened since last December. In the past year, it occurred once in October and once in December. Both were oversold moments. 

As you can see from the table below, after 90% downside days, the S&P 500 increases 12.4% in the next 9 months on average. That is a 3.4% outperformance over all 9 month periods since 1970. This points to the Monday selloff being a washout moment where investors capitulated and sold everything. Stocks rallying on Tuesday provides a small bit of verification to this thesis.

(Click on image to enlarge)

Redbook Growth Falls

In the week of May 11th, Redbook same-store sales growth fell from 5.9% to 5.4%. This is still a decent result. Bulls hope it correlates with strong real Q2 consumption growth. 

April retail sales report will be released on Wednesday. Expectations are for 0.2% headline monthly growth and 0.4% monthly growth in the control group.   

NFIB Small Business Confidence Improves

Capitulation - NFIB small business confidence index followed the stock market’s performance in April by increasing from 101.8 to 103.5. That beat estimates for 102.4 and beat the high end of the consensus range by 0.1. 

As you can see from the chart below, it’s still down from its peak late last year. It’s only slightly below the peaks it reached from 1986 to 2003. None of the indexes in this report fell and all but one rose.

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