Capitulation is a dramatic event in the stock market where a significant proportion of investors choose to sell their assets all at once, usually over a short period of time. It is usually sparked by fear and uncertainty in the stock market and the resulting selling leads to market prices sharply dropping. This can have wide-ranging effects affecting not only stocks but bonds, commodities and currencies.

The most defining characteristic of capitulation is the high turnover of investors. A capitulation is marked by sellers who are exiting in fear and replaced by buyers who are willing to take risks despite market uncertainty. These buyers often become attracted to stocks at capitulation levels due to bargain prices. While the capitulation causes the price of markets to drop, it does not necessarily guarantee that the prices won't drop even further afterwards.

Though a capitulation is usually considered to be short term and is often followed by a rebound or a ‘relief rally’, the severity of the capitulation dictates whether the rebound is just a temporary rebound or a more permanent uptrend in the markets. Following a capitulation, the rebound could be slow in coming until at least some of the initial losses have been recovered and the confidence of investors has been restored.

Since a capitulation is heavily driven by fear and uncertainty, it is in investors’ best interest to not allow their fear to take over and to act rationally based on market sentiments. During a capitulation, investors who can take high levels of risks in a volatile market may be able to take advantage of lower prices and make profits on a rebound. However, it is important to note that there is no guarantee that the lows reached by a capitulation will not fall even further.

In summary, a capitulation is a panic-driven event in the stock markets where a large proportion of investors exit over a short period of time, usually driven by fear and uncertainty. This leads to markets dropping sharply, with buyers only coming in at prices that are deemed attractive. Although the capitulation itself can lead to a rebound, there is no guarantee that the prices will not dip even lower in the time following the capitulation. Therefore, it is important for investors to be discerning and to make sure they make judicious decisions based on market conditions.