Capitulation

I don't know when it's going to happen but capitulation is definitely in the cards. Right now there is a decent bull/bear tug of war going on with the Fed riding the bull like they're at Gilley's.

We are in a depression not a recession. In past recessions the bear market left stocks with single digit P/E's and investors running for the hills supposedly never to return. But they did return after it was clear that the bear had ended and the bull was underway. Only problem was they missed the most violent leg up. The old sell low buy high maneuver. If stocks went to single digit P/E's after recessions where are they bound to go after this historic fiasco and depression we find ourselves in?

I can't say where the market is going this week or next but I am confident we will ultimately see capitulation. The next time there is a lot of fear I'm going to load up on options for the ride down toward capitulation. I think the bottom will be S&P 600 if the U.S. is lucky. When one does the math to get stocks to single P/E's the numbers are scary low.

Whatever you do don't buy into the argument that we're at a market bottom. I can't recommend writing any covered calls or writing puts unless they are on precious metals or bear ETF's. After capitulation that's a different story altogether.

How will you know when you see capitulation? Anyone who was optimistic and bullish will have been taken out to the woodshed to be ripped to shreds by the bear. When your barber and mechanic swear off stocks forever it's time to ride a massive bull rally that most will miss out on due to their fear.