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How To Identify A Climax Run; Taser's Move Offered Example

It's a nice feeling when your stock goes on a tear.

But how can you tell whether it'll keep going or fall back to earth

IBD aims to help investors by offering some guidelines on spotting a climax run on a stock chart.

As you might guess from the name, this is a final advance after a long move up. It's the high point at the very end of the stock's march higher.

One characteristic of a climax run is it generally occurs at least 18 weeks after a from a first- or second-stage base. With a later-stage base, it could happen sooner.

A climax run typically features a rapid price run-up for two or three weeks, with usually a 25% or 50% gain during that period.

On a daily chart, look for something like seven up days in eight sessions, or eight up days over 10 sessions. The stock's run should be white-hot.

In addition, you'll often see a wide trading range as the stock is staging a climax run. "The price spread from the stock's low to its high for the week will almost always be greater than that for any prior week since the beginning of the original move many months ago," William J. O'Neil, IBD's founder and chairman, wrote in ".

Other indications of a climax run include a stretch to 70% or 100% beyond the 200-day moving average, as well as excessive stock splits.

Taser International (TASR) provided a good example of a climax run with its action in 2004.

The maker of stun guns cleared a big, overly deep base in the summer of 2003 (see long-term weekly chart). It advanced more than 800% for eight months before showing signs of a climax run.

The warning signs included a gain of 65% in the last three up weeks of the stock's big advance. That began during the week ended April 2, 2004 and lasted through April 16. (1) In the week that the stock actually hit its peak, Taser also showed a huge weekly price spread of almost 29 points, or an astounding 82%. (2) Another troubling development was Taser's excessive stock splits, with one in February and another in April. Taser also was extended more than 100% above its 200-day line. The stock corrected 63% by June that year.