Selling Climaxes Spike to 4-year High

Last week saw the highest amount of selling climaxes since October 2011. Happy bulls and frustrated bears remember that October 2011 marked a major low. What does last week’s record number of selling climaxes mean?

Selling climaxes are considered a sign of accumulation as ‘strong hands’ happily buy the stocks offered for sale by ‘weak hands.’

A selling climax happens when a stock/index or ETF drops to a 12-month low, but bounces back and closes the week with a gain.

There were 605 selling climaxes last week; the Russell 2000 was one of them (more details here: Will Bullish Russell 2000 Signals Last?).

As the chart above shows, the last time there were more than 500 selling climaxes was the week ending October 7, 2011, when over 1,350 stocks saw a bullish reversal from a 52-week low.

Many happy bulls and frustrated bears will likely remember that the S&P 500 hit a major bottom on October 4, 2011.

I remember the October 4, 2011 low at 1,074 like it was yesterday, probably because it was one of my best calls. My October 2, 2011 note to subscribers said the following:

The ideal market bottom would see the S&P 500 dip below 1,088 intraday followed by a strong recovery and a close above 1,088, but technically any new low below 1,102 could mark the end of this bear market leg.”

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The problem with weekly climax data is the time delay. By the time Investors Intelligence reported last week’s climaxes, the S&P 500 was already 70 points above its low.

A closer look at the Russell 2000 chart shows that, although the spike in buying climaxes is net bullish, stocks are not out of the woods yet.

Here’s a look at the Russell 2000: Bullish Russell 2000 Signals – Will They Last?

Simon Maierhofer is the publisher of the Profit Radar ReportThe 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.

Bullish Russell 2000 Signals – Will They Last?

The Russell 2000 has weighted down the broad stock market since March. Now, for the first time in a while, the Russell 2000 is actually outperforming large cap stocks. Does that mean that small caps will lead the market higher?

The Russell 2000 is showing signs of life, after months of underperformance relative to the S&P 500.

The Russell 2000 is one of the only indexes (along with the MidCap 400) that painted a green reversal candle (see chart insert).

Prior to erasing last week’s losses, the Russell 2000 also dipped to a 52-week low. A weekly reversal after a 52-week low is also considered a selling climax.

605 stocks recorded selling climaxes last week. This is the highest count of selling climaxes since October 2011, which marked a major bottom (more details here: Selling Climaxes Soar to 4-year High).

From a technical perspective, here are a few Russell 2000 developments to keep in mind:

  • Bullish: Last week’s green reversal candle pushed the Russell 2000 back above support at 1,080.
  • Almost Confirmed: The chart below shows one indicator I like to monitor when it comes to spotting trend changes. On the short-term daily chart, this indicator requires a close above Friday’s high. The same is true for the weekly chart.
  • Confirmation Needed: The IWM:IWB ratio shows the performance of small caps (IWM Russell 2000 ETF) relative to large caps (IWB Russell 1000 ETF). The IWM:IWB ratio is about to test prior support, now resistance.

Unless the ratio can move above 1.05, small caps are likely to continue underperforming their large cap cousins.

In short, the Russell 2000 is showing strength, and odds of continued up side are increasing.

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 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.