I just posted this on the DWA site message thread but thought I should share this as well here:
Last week I was looking at the list of Selling Climax's and Buying Climax's and was
noting that the list of Buying Climax's seemed extremely large. I came across this
article today:
I put this in the category of "the weight of evidence", as to where this market may
be heading.
Jim
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Record number of buying climaxes
By Mark Hulbert, CBS.MarketWatch.com
Last Update: 12:01 AM ET Jun 25, 2003
ANNANDALE, Va. (CBS.MW) -- What are buying climaxes?
I'll give you a clue: They're not good, and there were a record number of them last
week.
A buying climax, according to Michael Burke, editor of Investors Intelligence,
occurs when a stock makes a new 52-week high and
then closes down for the week. "Buying climaxes are often the first sign that a hot
stock is running out of steam and therefore
provide not only a useful warning signal for a coming change in trend but very
often signal the top itself. Buying Climaxes are a sign
of distribution."
That's what makes the stock market so precarious at current levels, in Burke's
opinion. According to his calculations, in the week
ending Friday, June 20, there were 325 buying climaxes, which is "well above
anything previously seen."
The previous record came in May 2002, when 223 buying climaxes were recorded
in a single week. That came just prior to the
Dow Industrials ($INDU) plummeting from above 10,000 to its July low below
7,500.
Prior to May 2002, the previous record was 150 buying climaxes. That number was
recorded in late May 2001, which turned out to
be very close to the stock market's high for that year.
Though Burke does not base his market-timing judgment on just one indicator,
even one with as good a record as this one, the
others on which he relies are also flashing strong sell signals.
For example, Burke also places great weight on what corporate insiders are doing.
And right now, they are "heavy to the sell side."
According to Vickers Weekly Insider Report, in fact, during the latest week for
which data are available, corporate insiders sold
6.45 shares of their firms' stock for every 1 that they bought. That's more than
double the historical norm of around 2.5 sales for
every purchase.
Burke also places a lot of weight on his index of bearish sentiment among
investment newsletter editors. Right now, he is showing
the fewest number of bears in 16 years, which -- from his contrarian point of view
-- is a bad sign. (The Hulbert Financial Digest's
index of newsletter sentiment, though calculated differently than Burke's,
nevertheless paints a very similar picture. See my June 20
column.)
As a result of these and other indicators, Burke thinks risk is abnormally high, He
has been selling the stocks and funds he
previously owned, building up cash, and even initiating a number of short sales.
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