Anatomy of a bottom: Psychological characteristics of capitulation are largely absent

ANNANDALE, Va. (MarketWatch) -- Panic is not the same as capitulation.

That in a nutshell captures much of the confusion over what happened in the stock market earlier this month.

Without a doubt there was panic. The Dow Jones Industrial Average dropped more than 25% in less than a month.

But capitulation is something different, as I have learned in recent weeks as I have read more and more about the subject.

Capitulation has a number of distinguishing psychological characteristics, such as investor disgust and exhaustion. Having been burned by the market for so long, investors capitulate by resolving never, ever, to trust the market again.

In the wake of capitulation, therefore, interest in the market declines. Apathy rules. To be sure, this definition cannot be mechanically measured. It is hard to pinpoint when investors become maximally dejected and apathetic. But my hunch is that we have yet to experience capitulation.

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