Why Won't the Stock Market Panic Already?

Call it the chicken and the egg dilemma of this market: As stocks continue their summer swoon into bear territory, investors are looking for a panic-driven capitulation point to send things back upward.

Yet those same investors won't just go ahead and panic-sell to create the capitulation point.

So why not?

One reason investors aren't panicking could be that it really isn't warranted at this point.

"I don't think the market is trading down to low levels, I think the market is trading down to levels it should be at," says Ron Ianieri, head of Options University, in trying to put a fine point on the dilemma. As for what would indicate to him a real capitulation, he says, "I don't want to see the market down 100, I want to see the market down 500."

Another reason could be that investors may have become somewhat immune to sharp market downturns and don't quiver as much when bad things happen.

"It wasn't that long ago that we went through a very bad market," says Nadav Baum, managing director of investments at BPU Investment Group, referring to the market boom of the late 90s and the bust that followed in 2000.

"That's why people aren't too freaked out," he adds. "They figure - 'Hey, I just went through it. I held on and I did pretty good ... how much worse can it get this time?'"

Still another could be investors' reluctance to sell into a slump and lose their investments, especially if they're relatively later-comers to the market, say within the last five years when stocks have gained only marginally.

Whatever the reason, there's little doubt the market has not hit that point where it is so oversold that investors have no choice but to buy.

Yet it's not like there aren't at least some excuses to throw in the towel: Oil on a never-ending charge into the stratosphere, major indexes having their worst performances in years, continued problems at the nation's biggest banks, and so on and so on.

But it was the same old story in Tuesday trading: Indexes waffled around bear levels--indicating they had fallen 20 percent off their highs--but the Volatility Index

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[VIX  Loading...      ()   ] remained in relatively tame territory. Noontime news that most automakers' sales were even worse than the dismal level the market already anticipated sent the Dow into a 100-point tailspin, but that drop reversed itself when General Motors

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[GM  Loading...      ()   ] said its decrease in sales was less than the market expected.

Barry Rosen, who runs the Fortucast service, which predicts market movement, has been calling for the Dow to fall below 10,000 and the other indexes to drop precipitously as well. While a few week ago his calls seemed outlandish, they now appear to be closer to reality than the sentiment among a whole lot of other market pros that expect full capitulation could still be weeks if not months away.

"Psychologically, people are hopeful and they don't want to bank losses if they got in at certain levels," Rosen says. "If you got in five years ago you're starting to reach levels where you're going into the red. That's probably where we need to go a little bit before you get that kind of capitulation."