History’s Repeatable Cycle of Capitulation

A Repeatable Cycle of Capitulation

History has shown how there is a repeatable cycle of capitulation:

1. Worries pop up.
2. Volatility jumps from minor selling.
3. Fear sets in and skittish investors exit.
4. Fast market conditions and widening spreads enable huge Wall Street paydays – capitalizing on fear.

This is happening right now. MAPsignals data is showing some of the largest Big Money outflows in years!

Of course, it doesn’t feel good. In these environments, it seems like every time you check your portfolio, it’s smaller and smaller.

But if you sell, you might regret it. These drops often proceed the next march higher.

Big Money Flows in Phases

On March 4, there were 373 Big Money sell signals for stocks. This is on par with other capitulation events over the past few years:

But those red bars don’t last too long.

And look at how the underlying comparative index jumps shortly after the selloffs. That’s the small-cap laden exchange-traded fund iShares Russell 2000 ETF (IWM). After each capitulation event, it climbs higher.

Just like capitulation, Big Money flows in phases. It’s occurred many times throughout history and forms a repeatable pattern:

• Phase 1 – huge buying, minimal selling.
• Phase 2 – buying slows, selling grows, the market tops.
• Phase 3 – buying keeps slowing, selling prevails (correction area).
• Phase 4 – buyers are gone, sellers are in control (capitulation).

Focus Only on Today and You’ll Miss Tomorrow

Of course, there’s no announcement on the phase changes. Each one can be fast or slow.

But here’s the thing: the flip from phase 4 to 1 usually is revealed only in hindsight. So, focus only on today and you’ll miss tomorrow.

In other words, if you sell, you might miss the bounce-backs.

Big Money inflows and outflows are what move markets. And history shows how big dips come before big rips.

Don’t fall victim to fear. This selloff will eventually end, and Big Money will flow violently back into equities.

To know which ones, it helps to use a MAP.

If you’re a serious investor, Registered Investment Advisor (RIA), or a money manager looking for hedge-fund quality research, get started with a MAP PRO subscription today.