The CBI (Capitulative Breadth Indicator) finally spiked above 10 today and hit 12. For those who are unfamiliar with my CBI indicator, it basically uses a proprietary calculation to determine how much capitulation is evident among large-cap stocks. Spikes of 10 or higher in the past have led to market bounces on a fairly consistent basis. Those who would like more info on the CBI may want to read the intro post here or the full post history here. Until Tuesday the CBI had sat relatively dormant. I had thought the market might rebound before the CBI ever hit 10 this time, but this market seems bent on marking every extreme.
Until July, buying the S&P any time the CBI hit 10 or higher and selling it on a return to 3 or lower had a perfect record. The July trade turned out to be a loser. Below are statistics going back to 1995, which is as far as I was able to accurately reconstruct the indicator. The CBI has been tracked live for about 3 years now. All trades assume $100,000 into the S&P 500.
Impressive stats, but it’s important to keep in mind that the current environment is unlike anything we’ve seen since before data exists on this indicator.