Employ the correct strategy to exploit a capitulation | Ireland

While most of us were finishing off our Christmas shopping on December 24, a rare event occurred on US equity markets. For just the 16th time since its launch in 1953, the S&P 500 index capitulated. It was a “buy” signal, and the odds are high that a sustainable recovery in global equity markets started that day.

Capitulation is that event in markets where selling overwhelms buying, and the rate of decline accelerates as investors give up (capitulate) in reaction to consistent bad news. This time around, investors’ fears were galvanised by trade tensions, rising US interest rates, the Federal Reserve’s withdrawal of liquidity through quantitative tightening, fears of a big slowdown in China, and the growing possibility of recession elsewhere.

However, history teaches us…