I’ve been hearing the term “capitulation” being thrown around a lot lately on many of the talking heads programs. In context, it’s used like this: “…we won’t see the bottom of the market until we see capitulation”.

So what exactly does that mean?

In street sense, capitulation means to surrender or give up. You hear it in military history discussions frequently in terms of a surrender. However, in Wall Street sense, it means to “give up” any previous gains as investors sell equities in an effort to get out of the market and into less risky investments.

You’ll see capitulation set in when you see extremely high volume and sharp declines, and you could also equate this to panic selling.

So have we seen capitulation yet? In a sense, yes, but only because “extremely high volume” and “sharp declines” is subjective. In the grand scheme of things, I don’t think we’ve seen the extremely high volume that could indicate capitulation. Perhaps in a few of the individual finance stocks (like Bear Stearns) we’ve seen signs of this, but that’s due to individual stock news.

Capitulation will happen when people figure out that their money will work harder in something other than stocks. Unfortunately, since the Fed has lowered interest rates, its going to be tough to find that line in the sand.

Finance, Wall Street Lingo capitulation, Finance, market selling