Capitulation? I think not...

As defined by Investopedia, "capitulation" is associated with giving up any previous gains in stock price as investors sell equities in an effort to get out of the market and into less risky investments. It usually involves high volume and sharp declines (also known as "panic selling"). Are we there yet? When I look at the price action of the broad market ETFs (DIA, SPY, QQQQ) and listen closely to what the VIX and VXN are whispering, I'm not convinced. Certainly the sharp decline is evident, however, I'm NOT seeing the volume I would expect from panic selling and short interest continues to climb.

A closer look at the VIX...



...shows a repeating pattern - a pause at the current level before the VIX moves significantly and sharply higher. These past VIX moves correspond to "dead cat bounces" in the DIA, SPY, and QQQQ before heading to much lower levels. 117 looks like a certainty on the DIA, the SPY could go all the way to 125, and the QQQQ will test 46 before moving into the lower 40s.

I continue to hold my PUTs on DIA. SPY, and QQQQ with some calendar spreads to hedge. GLD is very frothy but is trading in a range so I'm moving in and out of the newly available options pretty regularly and clipping a few bucks each time. I'm out of GLD as of today with a nice profit on the gap down. A move to 85 would make me think about getting long for a short term bounce back up to the descending trend line.