What Is a Shakeout?

A shakeout is a situation in which many investors exit their positions in a stock or market segment at the same time, often at a loss. A shakeout is usually caused by uncertainty or recent bad news circulating around a particular security or industry. Shakeouts can be quite variable in duration, but they are usuall🐼y sharp in terms of the amount lost from recent highs.

A shakeout can also refer to stronger companies in an industry using their capital rese꧋rves to acquire or eliminate we🐻aker competitors that have overextended themselves.

Understanding Shakeouts

A shakeout isn't a well-defined term. Depending on who is using it, it can refer to a situation that sees 澳洲幸运5官方开奖结果体彩网:consolidation, or a situation where there is a severe 澳洲幸运5官方开奖结果体彩网:correction.

In broad market usage, a shakeout is simply a period of market turmoil that causes investors to pull back. Again, depending on who is talking, this situation can be described as a shakeout, a 澳洲幸运5官方开奖结果体彩网:market selloff, or a market correction. In 澳洲幸运5官方开奖结果体彩网:technical analysis, however, a shakeout is better defined and is said to occur 🔯;🍃as a leading stock corrects in price.

Technical Shakeouts

When it comes to chart formations, there are a few patterns that are considered to be shakeout patterns. These include the 澳洲幸运5官方开奖结果体彩网:cup and handle pattern and the 澳洲幸运5官方开奖结果体彩网:double bottom.

The market narrative for a shakeout is that periods of rising prices will eventually exhaust all the bears, as well as all the interested sellers. In the absence of selling pressure, the price action carries upward beyond its 澳洲幸运5官方开奖结果体彩网:moving averages and encounters resistance and dropping volumes. This halts the stock's advance and leads to a pullback.

After the shakeout, the previous trend often reasserts. It is worth noting that a shakeout is almost eജxclusively used to refer to a🃏n interruption in a longer-term bullish trend.

Industry Shakeouts

Shakeouts happen all the time. During broad market events, such as the 澳洲幸运5官方开奖结果体彩网:dotcom bubble or the 澳洲幸运5官方开奖结果体彩网:Great Recession, there are numerous shakeo🎀uts that see money pulled out of particular segments of the market. However, there is a related usage of shakeout t💝hat deals with specific industries.

An industry shakeout is when a period of massive expansion is followed by consolidation. In this case, stronger companies use their ca🌸pital reserves to acquire or eliminate weaker competitors that have overextended themselves.

This happens frequently with new industries, as with the dotcom bubble and the more recent rise and consolidation of social media companies. If the companies in question are 澳洲幸运5官方开奖结果体彩网:publicly traded, then the industry shakeout is mirrored in a market shakeout. If, however, some or all of the companies remain private during their growth stage—something that is becoming more common with technology companies–then the shakeout taꦓkes place without involving retail investors and the broader market.