All good runs come to an end.
On Broadway, the super-successful musical "Cats" ended an 18-year run in 2000. In baseball, Joe DiMaggio's hitting streak ended at 56 games.
Perhaps nowhere do good runs come to an end in a more dramatic fashion than in the stock market. Institutional buying fuels a big uptrend, but when mutual funds and other big investors decide to liquidate positions and a stock finally tops, the downtrend can be swift and harsh.
Growth stocks aren't meant to be held forever. They eventually top when buying demand dries up. It happened to China-based Sina (SINA) in 2011.
Sina bottomed with the broad market in March 2009. From a low of 17.89, it soared over 700% in a little over two years, helped by significant growth in its online advertising business and its microblogging site Weibo in the world's largest Internet market.
In March 2011, Sina was extended in price after a huge run-up. Soon, the stock started flashing multiple climax top signals.
Also, an 8.5% gain on April 18 (please see a daily chart) put the stock more than 100% above its 200-day moving average — nosebleed territory and a sign for longs to take profits. The rule here is to consider taking gains in a stock when it it 70% to 100% above its 200-day line.
The next day, Sina gapped up to an all-time high. It was an exhaustion gap after a rapid advance over many months — another selling signal. Keep in mind that its last legitimate base breakout was in September 2010.
On a weekly chart, five straight weekly price gains in March and April were another sign of a climax top (1). A big price jump like this when a stock is already extended is a sign that a top may not be far off. During the week ended April 22, Sina's weekly price spread was the widest of its uptrend, yet another sign of a climax top (2).
In addition, Sina closed in the middle of its weekly range, despite the heaviest weekly volume in years. That's called churning — heavy volume without meaningful price progress.
Sina showed similar action the very next week, up a scant 1% gain in heavy volume. Three distribution weeks over the next five weeks marked intense institutional selling, another sell signal (3) . Between April 22 and June 24, the stock crumbled 47%; but the Nasdaq fell no more than 10% off its 52-week peak.