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Climactic Readings Usually Signal Exhaustion

  • Written by Syndicated Publisher No Comments Comments
    November 10, 2012

    We often refer to very high indicator readings as being climactic. This is particularly true with ultra-short-term (days) indicators such as the Participation Index, which measures short-term price trends and tracks the percentage of stocks pushing the upper or lower edge of a short-term price trend envelope. High DOWN Participation readings this week probably mean that current selling pressures are exhausted in the very short-term.

    (This is an excerpt from recent blogs for Decision Point subscribers.)

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    On the chart below we can see that readings of +60 and greater (UP or DOWN Participation) are generally speaking extreme or climactic. And in most cases climactic readings coincide with the exhaustion of the price move that generated the climactic reading. Sometimes prices consolidate briefly before continuing in the direction of the climax, or the trend reverses, retracing all or part of the previous price move.

    Screen shot 2012-11-09 at 2.11.06 PM

    On Thursday we had a DOWN Participation of +69, so we should be expecting that selling pressure in the ultra-short-term time frame is close to exhaustion. Friday’s miniscule bounce and the contraction of DOWN Participation implies that we can now expect a short consolidation or slight advance before prices head lower.

    Obviously, it is possible that we will see even more extreme DOWN Participation readings next week (driven by much lower prices), but for now let’s assume that the market will take a brief “pause to refresh”.

    Images: Flickr (licence attribution)

    About The Author

    Carl SwenlinCarl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.