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Thursday, June 16, 2022

Market Update 6/16/22 - Capitulation - Part 2

Picking up from where we left off in Part 1 of this series on identifying capitulation - Link to Capitulation Part 1 

In Yesterday's update, we touched on what capitulation is, the terminology, and some of the psychological indicators, one of which is and overly bearish (or bullish) main stream media. 

When you see headlines that are bearish, and calling for a recession, or worse, and even Fox news is reporting on the latest market sell-off, that's a good indication that sentiment is overwhelmingly bearish, and that means a sentiment reversal is very likely. 

Once the bad news is reported by the lame stream media, you can consider it, "priced in".   

Sentiment Indicators 

I use certain sentiment indicators to spot bearish sentiment, as we'll as oversold conditions, and I can tell you that bearish sentiment is at new recent lows, with less than 20% of stocks trading above their respective 200 day moving average. Of course this makes perfect sense, considering that the rug continues to be pulled, it seems like every other Friday, and that's usually been met with another Monday morning surprise to the downside, but regardless of the planning that goes into these seemingly endless bear raids, at some point the bad news is all priced in, or the powers that be, decide it's time to drive the market up, in yet another short squeeze.    

Today is a little different, as we see market futures being taken down on a Thursday!   

Of course these sentiment indicators could turn far more bearish than what we've seen, but the only real news, we've seen is the fear that the fed is going to cause a recession. Of course there's the Russia situation, and rising energy prices, and that is compounding the inflation problem. There are a lot of what-ifs, and the market doesn't like uncertainty, but at some point investors become overly bearish, and capitulate (give up), and that's where you see market sentiment change, and it at this point, you see historic counter-trend rallies, like we saw in 08. 

The crash of 07 - '08, was marked by several historic counter-trend rallies. This was good trading for those who didn't allow their bearishness to get in the way of their trade. This is what market timing is all about. Sure, I could draw a big audience by blathering on and on about how bearish I am, and I've done that in the past, but at the end of the day, the bulls usually win.   

Sure, at some point we will see a cyclical bear market, and even the collapse of global markets, entirely, but probably not for at least a few more years.  

  Back to these historic counter trend rallies - see the above Dow chart 

That was back when the DOW was trading around 12 - 14k, and a thousand point move on the DOW was a big percentage move. 

Compare that to today's dow chart, and trading in a highly reactive, and emotional market?  

I think could easily see a 4000 point move on the DOW! Especially given the time of year. Volume is about to dry up, and the smart short sellers have already left for summer vacation. What's left is mostly retail short sellers; not the sharpest tools in the shed.  

Am I bullish? No, but I know the market doesn't move in a straight line.   

What about tech, because like I said yesterday - in Part 1 - "this is one of the only places, where we've seen real capitulation".  

Technology Stocks - I can confirm that we're finally seeing capitulation in the technology sector, given the spike in selling volume, last month. Of course the hot shots at CNBC are looking for a massive 1 day sell-off, but I think that's unlikely.  

  Think the NASDAQ can't rally 1000 points. with all the cash sitting on the sidelines, and a long summer break coming? Believe me, I have my doubts, but even in a "bear market", the NASDAQ could retest 14k level, at the top of the failed channel. 

$COMPQ - NASDAQ - Again see last months selling volume? 
Watch for a test of the 50 month moving average, as soon as this morning. 
By the way, never use a QQQ chart to trade the NASDAQ. I see people doing this all the time, and they should know an ETF doesn't provide accurate targets. The target, on a retest of the upper channel looks like a 30% snap-back rally to the 14.2k level, as soon as August.  


BitCoin is another place we saw real capitulation, so that's a buy!   

In yesterday's update I admitted I've been wrong about bitcoin, in the past, but I was wrong again yesterday, when I told folks, not to attempt to bottom pick BitCoin. Although it is good to confirm a bottom, before investing in anything, rather than catching a falling knife, but I'm officially reversing my outlook for BitCoin, and it's not because I'm fully invested. I have no stake in BitCoin, and nothing to gain by recommending it!  

  Since the global markets seem to be following bitcoin - which is in itself is a little scary, and #Bitcoin along with #CoinBase continues to trend on twitter, I want to remain focused on this market, and reveal a very important chart, but not until the reversal, is absolutely confirmed.

I'm out of time!  

Check back for that Bitcoin chart, as soon as tomorrow, in Part 3! 



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