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Stock Buying Climaxes Soar Again

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 (^GSPC) 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 (SPY) points. None of the recent spikes in buying climaxes caused lasting damage.

More reliable than buying climaxes were the spike in selling climaxes (dashed green line) 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.

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