Picking a Market Bottom: Why the Pros Are All Wrong

Do a Google search for "capitulation" on CNBC.com over the past year and you get 256 hits, some of them, to be sure, stories like the June 30 piece quoting UBS stocks guru Art Cashin saying that capitulation has not yet materialized.

But Cashin and others who have avoided the term seem to be edging closer to it lately.

"The first time I used ('capitulation') was Monday," Landesman says. "I used it because I was starting to hear from retail investors that they were stepping in and selling. They couldn't stand their account going to zero and they needed something to happen.

"I felt that was a good sign. When the retail guy capitulates you start getting near the bottom. Will it be 650 (on the S&P 500) that holds it? Will it be 600? Who knows?"

While the November lows may well have held, investors got shaken this year when government leaders failed to articulate clear plans to solve the economic crisis.

"People expected a real Obama rally," Landemsan says. "They thought he'd come in and bring a real wellspring of hope and that just didn't happen."

Indeed, investors can be forgiven nowadays if they cringe when they hear another expert talk about a market bottom.

But there have been plenty of investment pros over the last year who have avoided such talk.

Richard Sparks, senior analyst at Schaeffer's Investment Research, has assiduously steered clear of capitulation chatter no matter how bad the market has gotten, consistently reasoning that he has not seen the despair required for a bottoming point.

"I don't think we're out of the woods yet with respect to the volatility and the downtrend that we've seen," Sparks told CNBC.com on Oct. 21 when the Dow closed at 9,045. "We can't look out ahead and see much light on the horizon."

That light, many analysts now agree, will only begin to shine when the economy stabilizes--not necessarily grows, but at least no longer sees the precipitous declines that come with the daily data points.

"If things stop getting worse in the economy and the economy stabilizes a bit, stocks will stabilize," Flam says. "To a certain extent that's got to be led by financials. Given the importance of the banking system to the economy, as long as the banks continue to deteriorate I think it's going to be hard for the market and economy to stabilize."

At that point, where unemployment and housing prices halt their declines, it could provide an all-clear moment for experts to start looking for a true market bottom.

"Any stability would be seen as hugely positive. If people really thought the economy had bottomed you'd see an enormous rally," Landesman says. "If people can make the call they're going to be stepping in and buying stocks."

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