Spike In Buying Climaxes
Among the weekly indicators that have been updated through Friday, one of them stuck out after the numbers were finalized - the number of buying climaxes among S&P 500 stocks spiked to the highest level since January 2015.
A stock suffers a buying climax if it trades to a 52-week high during the week, then falls back to close below the prior week's close. It suggests exhausted interest among buyers.
For the week, there were 62 stocks in the S&P that suffered such a fate.
Let's go back over the past 20 years and see how the S&P index performed any time the number of climaxes rose above 60.
We can see that the most consistent short-term performance was over the next two weeks, with stocks rising after only 9 out of 24 instances, along with a negative average return and risk/reward ratio. It slowly improved after that, and longer-term returns were fine, especially lately.
By the time the number of climaxes spiked, stocks had usually suffered some kind of short-term decline, and over the past few years that had been enough selling pressure before the rally took hold again. A couple of the climaxes led to no weakness at all, but that was the exception rather than the rule.
Some consider volume to be an important consideration (we don't) so let's filter the results to only those weeks that not only saw a spike in buying climaxes, but also an increase in average volume for the week.
The results were exaggerated somewhat, with only 5 weeks out of 15 managing to rally over the next 1-2 weeks. Longer-term returns were again fine.
We'd consider this to be another warning sign for the shorter-term.