One major concern I’ve noted over the past few weeks has been the steady increase in buying climaxes. Back at the start of October
I first noted this growing concern and the recent weak overall price action has done little to change my near-term worries.
First things first, a selling climax occurs when a stock reaches a new 52-week low, then reverses and closes higher on the week. You tend to see a cluster of these near market lows, and they are considered to be spurred by the “smart money” (whoever that really is) accumulating bullish positions. The flip side is a buying climax, which is a new 52-week high followed by a sell-off and lower prices on the week. In other words, this action could be the result of smart money distributing shares.
Well, we are currently looking at multiple weeks now of steady buying climaxes. In fact, there were another 44 last week – bringing the grand total to 427 since the middle of September.
I continue to think any and all pullbacks will eventually be bought and we will rally into the end of the year. Nonetheless, no one gets paid just for their opinion – they get paid by actual trading performance. Be very careful out there as worries continue to mount and this pullback very well could have further to go. Be smart and don’t be a hero trying to catch a falling knife.
This article by Ryan Detrick was originally published on Schaeffer's Investment Research.
Below, find some more great content from Schaeffer's Investment Research:
Delta Air Lines Speculators Anticipate a Post-Earnings Descent
Where is Possible Support for SPY?
ARM Holdings Traders Prepare for Post-Earnings Struggles
No positions in stocks mentioned.