Capitulation Trading: Dog Eating Your Dog Shares

On January 22nd, I was humiliated by Carter Worth. Carter is Chief Market Technician at Oppenheimer and a frequent guest on CNBC's Fast Money. He has been spot on since I can remember, and I always pay close attention to his analysis. So I guess it's not humiliating to be beaten by Carter, and I want to thank him for teaching me a lesson: Not every stock has rabies.

On Martin Luther King Day, markets around the world were tanking while the U.S. market was closed. The anxiety was palpable, and I (like many others) couldn't wait for the Tuesday open to dump some shares and save myself from certain financial doom. The market had been going down for weeks, testing my patience and pain tolerance, and this was it--I could take it no longer. I had to get out before the crash!

On January 22nd, of course, the market opened down huge (get out now!), only to rally and put in a low that lasted until early March (huh)? Eager for understanding, I was watching either Closing Bell or Fast Money, and on came Carter. He said (my paraphrase), "This was capitulation. An open like that, you don't want to be selling, you are capitulating. I want to buy those shares." Very matter of factly, Mr. Worth was telling me that I gave him my money out of panic. Carter, you're welcome.

It was then that I recognized the true zero sum game of the market, the dog-eat-dog nature that rewards the smart and cool and punishes the scared and unprepared. I was behind the curve. Way behind. From a long term perspective, it was no big deal. We are lower today than we were in January. But as a trader, I missed the boat.

The beauty of trading is that we can learn new tricks, and start over if necessary. Since January, there have been several days where the premarket has looked terrible. My drubbing at the hands of a professional taught me not only to avoid panic, but to see those days as opportunities--not necessarily for long term investments, but for short term trades. It happened again today. Don't get me wrong, I still think the market will work its way lower. But along the way, I'd like to take those shares that you think are dogs going the way of Old Yeller for a little walk...with my finger firmly on the trigger, of course.

[Note: On Fast Money tonight, Carter Worth said he did not consider today's action as confirming a long term market bottom, mostly because the bear market has not lasted long enough based on historical precedents. Just so you know...]