Our Guide to Buying & Selling Stocks at Weekly Buy/Sell Climaxes
Selling at the exact top and buying at the rock bottom are the dreams of many traders. A difficult endeavour, but not impossible. To do end, traders and investors employ as many indicators as possible to them give an ‘edge’. One such useful contrarian indicator is the Weekly Buy/Sell Climax.
In GoodMoneyGuide, we have a suite of technical indicators including the Weekly Buy/Sell Climax – see this very useful page.
What is a Weekly Buy Climax?
Definition. A weekly “Buying Climax” has two conditions. The first is that during the course of a week, prices rally and close at 52-week highs. The second condition is that this same stock ends the week lower than the previous week.
Interpretation. What this means that the a stock rises to long-term highs but fails to close higher. Instead, prices slip beneath its last week’s level. No upside follow through suggests buying fatigue.
Example. Using some simple computer algorithms, I find one recent example of the Buying Climax – Next Plc (NXT) during the week of 28 Oct – 1 Nov. As showed below, prices rallied to new 52-week highs above 6,800p but closed the week below 6,600p, thus generating a Buy Climax.
What is a Weekly Sell Climax?
Definition. A weekly “Selling Climax” has two similar conditions. During the course of a week, prices have to register a 52-week low and then finish the week higher than the prior week.
Interpretation. A stock that drops to long-term lows then rallies to close higher week on week is a sign that changes are afoot. The stock price is low enough to attract bargain hunters, thus setting technical floors.
Example. Using computer programs I find a recent example of a Sell Climax in the mid-cap sector – Synthomer (SYNT) during the week of 28 Oct to 1 Nov. Prices closed below 280p during the week but rallied sharply higher towards the end, thus generating a Sell Climax (see below).
Aggregate Numbers More Important
By itself, a Buy or Sell climax does not have huge predictive powers. This is because a stock can generate a Buy Climax multiple times during a long rally.
However, when many stocks produce a Buy/Sell Climax simultaneously, it signals something important: Momentum fatigue.
Remember that a Buy/Sell Climax requires a stock to reach 52-week Highs/Lows. By this measure alone, prices would have been trending for some time already prior to a Buy/Sell climax. When multiple upside/downside failures appear, this mean that these running trends are potentially exhausted and ending for the time being.
A market that shows masses of Buy Climax means it is vulnerable. On the contrary, a market that generates a large number of Sell Climax means a rebound in on the table.
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Jackson has over 15 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.