In a declining market, traders often speak of the need to have capitulation or a selling climax, in order to find a low in the market. I believe selling climaxes or capitulatory moves that end a decline are bull-market phenomena; they are not how a bear market ends.

Panic selling is what occurs when investors get scared out of the market during a bull market. But while we have a tendency to look for such selling in a bear market, it doesn't occur very often in my view. We tend to get a series of panic-selling lows, but none leads to more than a short-term rally.

In a bear market, the news that comes out is almost always awful and just keeps getting worse. The general feeling is that there is no reason for hope. In other words, there is no panic at the lows--there is simply doom and gloom and disgust with the market.

What might the bottom look like?

Consider the 2000 2002 bear market. The first real wave of panic selling came in the post-9/11 days, when we were all frightened out of our minds that there were multiple terrorist attacks still to come. Investors panicked and sold stocks (point A on the chart).

The rally that followed that panic lasted approximately eight to 10 weeks. Yes, there are those who say the rally actually lasted until the spring of 2002, but quite frankly, once we got to the 1,170 area on the S&P 500® Index by early December, we never made any more progress (point B on the chart).

There was even a panic in the spring of 2001. That too led to a rally, but not a major market bottom.

It wasn't until March of 2002, six months after that initial panic low in late-September 2001, that we started down one more time. This time we took out the September 2001 lows, and the slide lasted until late July. In my view, that, too, was a panic low (point C on the chart).

That led to yet another rally, which lasted approximately three weeks. We promptly went into another slide that lasted two months and saw yet another lower low (point D on the chart).

That rally didn't even take us as far as the previous rally before it, too, died. But look at how much calmer that last move down was. It was a slow drip from October through March. Grinding might be the word we'd use to describe it.

Notice a theme here: The panic lows led to shorter and shorter rallies, and the declines started lasting longer and longer.

We finally did make the low in March (point E on the chart), but that low, as you can see, did not come from panic the way the three previous lows did. It was much more of a whimper.

Arriving at the bottom

So when you hear the talking heads call for capitulation this time around, please understand that I think a capitulation low only leads to a short-term rally, not a long-lasting bottom. I believe if we manage to go sideways for many months, or even a year or more, we have a better chance at making a bottom that is long-lasting, since we might have the beginning of some base-building. But, in my view, calling for a capitulation low right now would be akin to believing we are still in a bull market, which we are not. Traders should play the swings. Investors should wait until better bases develop.

In a typical bear market, doom and gloom persists. We tend to get a series of panic-selling lows but none leads to more than a short-term rally.

Panic selling occurred several times in the 2000 2002 bear market, yet in each instance the market continued lower.

The final low of the 2000 2002 bear market was a case of sellers going out with more of a whimper than a bang which in my view is indicative of the nature of true bottoms.