In last week’s ChartWatchers newsletter, I wrote about the climax days that occurred the previous week. We saw two more last week and I’ll give you the heads up that today we saw an upside initiation climax.
Here’s a refresher on what a “climax” is:
A climax is a one-day event when market action generates very high readings in (primarily) breadth and volume indicators. We also include the VIX, watching for it to penetrate outside the Bollinger Band envelope. The vertical dotted lines mark climax days — red for downside climaxes and green for upside. Climaxes are either initiation or exhaustion.
If you want a more in depth discussion of climax analysis, you can read last week’s ChartWatchers article here. Additionally, here is a link to the DecisionPoint show where I discussed climax analysis.
Let’s review Tuesday:
You can see that, on the gap down selling, we saw elevated readings on the Volume Ratios, as well as outside readings on many of our indicators. This was an initiation because it arrived at a market top and it followed an upside exhaustion climax the previous week. We didn’t see much follow-through on Wednesday, but we definitely saw major selling on Thursday to confirm it. Now we will talk about the climaxes from yesterday and today…