Buying Climaxes Soar to 1-Year High

Wall Street concluded 2014 with double-digit gains, the S&P 500 was up 11.34%, but stocks didn’t end on a high note.

The last week saw 393 buying climaxes, the highest amount since January 2014.

According to Investors Intelligence, buying climaxes take place when a stock makes a 12-month high, but closes the week with a loss. They are a sign of distribution and indicate that stocks are moving from strong hands to weak ones.

Hardest hit were utility, bank and insurance stocks along with the corresponding ETFs.

The Utility Select Sector SPDR ETF (NYSEArca: XLU), Financial Select Sector SPDR ETF (NYSEArca: XLF) and iShares Russell 2000 ETF (NYSEArca: IWM) were some of the prominent ETFs with weekly red candle highs.

The Profit Radar Report closed all equity positions on December 30, largely because the Russell 2000 (one of the leading indexes at the time) displayed sluggish internals.

The chart below plots the S&P 500 against buying climaxes. When looking at the chart it’s important to keep in mind that buying climaxes are reported on Monday of the following week.

Since most of the 2014 corrections were brief and followed by a V-shaped recovery, it appears as if buying climaxes marked lows instead of highs.

The second chart shows selling climaxes, which soared in early December.

The recent spike of buying and selling climaxes suggests that investors are torn and the period of calm may have come to an end.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Buying Climaxes Soar to 5-Month High

Buying climaxes are said to be a sign of distribution, indicating that stocks are moving from strong to weak hands. As such, buying climaxes often foreshadow trouble. What does the recent surge of buying climaxes mean?

Along with the Dow Jones and S&P 500, more than 500 individual stocks recorded new 52-week highs last week.

However, like the Dow and S&P, most stocks weren’t able to hold on to their lofty price tags.

12% of S&P 500 (SNP: ^GSPC) stocks had buying climaxes. This is the highest reading since January 27, and the second highest reading of the year.

A buying climax takes place when a stock makes a 52-week high, but closes the week with a loss.

According to Investors Intelligence, which tracks buying/selling climaxes, buying climaxes are a sign of distribution and indicate that stocks are moving from strong hands to weak ones.

The chart below, which plots buying/selling climaxes against the S&P 500 (NYSEArca: SPY), harmonizes with the assessment of Investors Intelligence.

An increased amount of buying climaxes often results in a flattening of the up trend or price weakness.

However, none of the buying climax spikes in recent years has resulted in a major market top (even though many pundits have been calling for just such a major top).

What does this cluster of buying climaxes mean for stocks?

Here’s a detailed S&P 500 forecast based on the three key forces that drive the market.

Updates 2014 S&P 500 Forecast

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Stock Buying Climaxes Soar as Stocks Reverse

It’s said that buying climaxes take place when stocks are passing from strong hands to weak ones. The facts tend to support this thesis and the notion that late-coming mom and pop retail investors bought their ‘ticket’ just before the roller coaster ride starts.

90 S&P 500 component stocks saw a buying climax last week.

That means that 18% of all S&P 500 stocks made a 12-month high last week, but ended the week with a loss.

More S&P 500 buying climaxes were only seen three times in the last decade (November 2004, April 2010, May 2013).

22% of Nasdaq-100 (Nasdaq: QQQ) companies also saw a buying climax. Some of the more popular Nasdaq reversal stocks include high-flying Amazon and Priceline.

Investor’s Intelligence reported 495 NYSE buying climaxes.

The chart below plots the number of buying climaxes reported by Investors Intelligence against the S&P 500 Index.

Historically, the S&P 500 (NYSEArca: SPY) and Nasdaq have rarely been as overbought as in December/January.

The high amount of buying climaxes caution that the smart money is exiting while the not-so-smart money has come late to the party.

Buying climaxes are one reason to worry about a deeper correction. Here are three others:

Watch for a Bounce! But 3 Reasons Why a Longer Correction is Likely

Simon Maierhofer is the publisher of the Profit Radar ReportThe Profit Radar Report presents complex market analysis (stocks, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Buying Climaxes Soar – Are Stocks Moving from Strong to Weak Hands?

Buying climaxes occur when a stock (or index) makes a 52-week high, but closes the week with a loss. Prior spikes in buying climaxes have usually preceded weak stock prices. This week saw another buying climax extreme.

The last time we looked at buying climaxes was on May 28, 3013. At that time there were 864 buying climaxes in one week.

Over the next month the S&P 500 (SNP: ^GSPC) lost as much as 114 points (6.8%).

Buying climaxes take place when a stock makes a 52-week high, but closes the week with a loss.

According to Investors Intelligence (II), which tracks buying climax data, they are a sign of distribution and indicate that stocks are moving from strong hands to weak ones.

The last two weeks saw back-to-back readings of 386 and 380 buying climaxes, the second highest selling activity in 2013.

The chart below shows the number of buying climaxes with an overlay of the S&P 500 (NYSEArca: SPY).

The small cap sector (NYSEArca: IJR) and interest rate sensitive sectors such as financials (NYSEArca: XLF) saw a large concentration of buying climaxes.

A substantial increase in buying climaxes doesn’t always result in falling stock (NYSEArca: IWM) prices, but it is an obvious warning.

Buying climaxes aren’t the only red flag. A number of sentiment polls have reached multi-month, multi-year, and record extremes.

Those shouldn’t be ignored, because the S&P 500 and Nasdaq are in a technical ‘make it or break it’ zone.

The following article reveals the more than decade long resistance levels stocks are struggling to surpass.

Nasdaq and S&P 500 Held Back by ‘Magic Resistance’”

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE Newsletter.

Stock Buying Climaxes Soar Again

Investors Intelligence reports 336 buying climaxes for the week ending July 26. This is the fourth highest reading of the year. While there is a short-term message, the big picture message of recent climaxes looks more important.

Investors Intelligence (II) reported 336 buying climaxes for last week.

Buying climaxes take place when stocks make a 12-month high, but close the week with a loss. They are a sign of distribution and suggest that stocks are moving from strong hands (long-term investors) to weak ones.
This sounds bearish, but what does it really mean for stocks?
The image below superimposes the S&P 500 on top of II’s buying/selling climax data.
Last week’s buying climaxes almost reached levels seen in March and April, which coincided with corrections of 30 – 70 S&P 500 (NYSEArca: SPY) points. None of the recent spikes in buying climaxes caused lasting damage.
More reliable than buying climaxes were the spike in selling climaxes reported on July 1. The last week of June saw 206 selling climaxes, the highest reading in at least a year. This was one of the clues that stocks may rally stronger than expected.
Viewed as part of the big picture, the cluster of buying climaxes since March 2013 is noteworthy. After all, this QE-bull market is now 52-month old. The average length of a bull market (according to Lowry’s) is 39 months.
This may be early telltale signs of a developing market top. The majority of my supply/demand and divergence-monitoring indicators still suggest new highs ahead, but they should be enjoyed with caution.
Actual target levels for a possibly significant market high are revealed in the Profit Radar Report.
Simon Maierhofer is the publisher of the Profit Radar Report.
Follow Simon on Twitter @ iSPYETF.

Buying Climaxes Soar to ‘Flash Crash’ High as 30% of S&P 500 Stocks Peak

Buying climaxes are at the highest level since April 2010. The April 2010 highs were closely followed by the May ‘Flash Crash.’ Are the current conditions similar to 2010 and should we be concerned about a ‘Flash Crash-like’ event?

There were 864 stock buying climaxes last week. What is a buying climax and why is that significant?

Buying climaxes happen when a stock (or index) makes a 12-month high, but closes the week with a loss. They are a sign of distribution and indicate that stocks are moving from strong hands to weak ones.

iSPYETF previously pointed out elevated buying climaxes in articles published on February 13 (112 buying climaxes) and April 10 (347 buying climaxes).

Both instances were followed almost immediately by corrections (see chart). Last week’s number of buying climaxes – 864 – eclipses the 112 and 347 climaxes seen prior to the February and April corrections.

In fact, the current reading is the second highest total since 2004 and is surpassed only by the 1,079 buying climaxes in the week of April 30, 2010 (see chart insert).

It sounds dramatic, but it’s worth pointing out that the April 2010 price high was chased by the May ‘Flash Crash.’

Does that mean another ‘Flash Crash’ event is around the corner?

The ‘Flash Crash’ was preceded by historic sentiment extremes and an incredibly concerning equity put/call ratio. In an April 16, 2010 note to subscribers (now known as Profit Radar Report) I warned that:

The equity put/call ratio is 45% below its six-month average. The message conveyed by the composite bullishness is unmistakably bearish. Once prices do fall and investors do get afraid of incurring losses, the only option is to sell. Selling results in more selling. This negative feedback loop usually results in rapidly falling prices.”

Current conditions aren’t as extreme as they were in April 2010, but they should be of concern to investors, nonetheless.

It doesn’t take a ‘Flash Crash’ to hurt a portfolio. A slow and determined correction can do the same thing ‘Chinese drip torture-style,’ – slower, more painful, but with similar results.

Like in 2010, it will take a ‘watershed’ event, a decline that spooks enough investors, to get the ball rolling.

A break below important support will likely be just such an event. The Profit Radar Report already pinpointed the must hold support level that – once broken – will lead to lower prices.

Bearish Buying Climaxes Are Adding Up for Stocks and Even the S&P 500

The Dow Jones and S&P 500 were able to recover from last Friday’s post unemployment report sell off and posted new all-time recovery highs this week. However, buying climaxes suggest increasing down side risk.

Most indexes have completely recovered from Friday’s mini sell off. Nevertheless, last week’s red candle left some technical ‘scars.’ In what sense?

Last week marked a buying climax for the S&P 500 and 347 individual stocks. A buying climax occurs when a stock/index makes a 12-month high, but closes the week with a loss.

Since the 2009 low, the S&P 500 saw 13 buying climaxes. Buying climaxes are identified by gray boxes and vertical gray lines in the chart below.

What was the performance after each buying climax?

·      3 times a buying climax was followed by 10%+ corrections

·      4 times a buying climax was followed by marginal new highs (another 5 – 10 days of gains) before a sizeable
decline

·      2 times a buying climax was followed by a minor correction

·      2 times a buying climax was followed by an immediate short-term low

Buying climaxes are generally bearish. According to Investor’s Intelligence they are a sign of distribution and indicate that stocks are moving from strong to weak hands.

The chart confirms Investor’s Intelligence’s definition and past precedents (at least since 2009) caution that the market’s recovery from a buying climax may be temporary (and treacherous) in nature.

For right now the trend is up. Since that could change quickly, the Profit Radar Report will supplement data like this with broader technical analysis, sentiment, seasonality and support/resistance levels to identify a low-risk opportunity to go short.