Capitulation. Everyone wants it. Everyone is looking for it. Everyone.
Why do we want it? Why do we need it? Why does it matter?
What we have seen in April is a slow drip. With the exclusion of the first two days of the month, we have not seen consecutive up days for the S&P 500. Each week, we've gotten one up day that helps work off the oversoldness that has built up, but it never has follow-through. Sure, the lack of follow-through is problematic, but if you are looking for capitulation, then it's the one-day rallies that are really problematic, because they never allow the market to get to a good oversold condition.
The other thing that is a problem if you are looking for capitulation, is that everyone wants the proverbial whoosh, that big high volume down move that sees folks panicking -- and we don't get that, either. Instead it is a steady drip lower. Some stocks like Shopify (SHOP) are down 70% just in 2022 alone. I'm not even going back to the all time high in 2021. Roku (ROKU) is down 60% in 2022, and 35% in April.
That is not a whoosh, it is a relentless decline. So, I ask you, what would possibly make you want to buy this stock? What would a whoosh look like to you? I don't know, because I would have said that gap down in mid-February looked to be a whoosh and the rally lasted a week before it resumed its decline.
I am sure every one of you has a stock like this that you can cite a similar type of action in. At what point do you call it a whoosh or capitulation?
There is a reason bearishness abounds. There is a reason no one wants to buy. There is a reason everyone uses every rally as an opportunity to sell. Because they look at charts like that and wonder where the bottom is.
Bottoms are made when the sellers are done. They are made when some brave souls step up to buy, and each time the stock comes back to that level, they buy again, and again and again. Patience is required.
Apple (AAPL) was not one of those flashy hot stocks in the late 1990s, and it didn't have one of those massive relentless declines, but, even so, look at how that base was built. Look at how many times the stock had to rally to resistance and come down to support. That's three years, and it didn't even break out after that. It still took a few more months to really lift out of that range.
We might not need years of base building, but a few months would be a start.
What we have now is relentless bearishness. We have a market that is once again just about oversold. I think that means another lift or rally by the end of this week or by early next week. What is it these growth stocks don't have? Bases.
The put/call ratio has been over 1.0 for five straight days, which means the 10-day moving average is back to 1.05, where it was in January. If we get a few more days of high readings this moving average will exceed January's high, solidifying the bearishness. And hopefully helping to get yet another short term oversold rally.
Note: Meisler is speaking at the annual CMT Symposium on Friday so there will be no column Friday or Monday. The next column will be May 3.