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Sunday, August 02, 2009

 

buying climax?


there's a lot of lines on this screen cap, but i might isolate out a component of this market screen for attention.

first, buying climaxes -- this is a condition of the underlying components of the index wherein an issue makes a high in the previous five days which is also a 65-day high, but then also reverses to close on this day lower than any of the five previous closes. it is intended to mark big momentum shifts in the underlying which may not be apparent in index price.

some 14.6% of the S&P 500 met that condition on friday, in spite of the index giving the best closing price since november 4. i ran some date-marked red lines through previous spikes in buying climaxes to give some kind of feel for how the condition typically resolves. particularly curious is the divergence with index price -- often, buying climax spikes are part of broader price corrections reflected in the index price. is there any special place for those arising on new five-day high closes?

the previous dates for this infrequent condition: 7/15/2005, 1/6-7/2004, 6/12-13/2003, 1/3/2001, 2/19/1991, 12/12/1990. from five of six of these points there was a possibility of buying lower during a multiweek market stall. just as notably, however, all six saw somewhat higher index prices ahead of trouble -- as though some time was needed to dissipate momentum. small sample size, however, should weigh on the applicability of this particular divergence as a predictor.

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Can you update this at the end of the week?

 
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