Q2 STOCKS TO BUY

What to Make of This Signal At a 4-Year High

A huge proportion of stocks hit selling climaxes last week. What could that mean for the S&P 500 Index (SPX)?

Jan 26, 2016 at 2:24 PM
facebook X logo linkedin


Last week, the stock market experienced another surge in selling climaxes -- just as it did last August, marking the first one-two punch since the financial crisis. For the uninitiated, a selling climax occurs when an optionable stock (that meets liquidity requirements) hits a 52-week low in intraweek trading, but eventually settles on a week-over-week gain. So, could this rare occurrence have broad-market implications for the S&P 500 Index (SPX)?

Below is one chart presenting this data, courtesy of Schaeffer's Quantitative Analyst Chris Prybal. It shows the absolute number of selling climaxes last week, with 999 out of 3,627 optionable tickers qualifying. This is the highest total since the week of Oct. 7, 2011, when 1,003 stocks hit a selling climax. 

160126sellingclimaxes1

In the next chart, Prybal then presents weekly selling climaxes on a percentage basis. Last week, 27.5% of optionable equities hit selling climaxes -- the most since that same October 2011 signal, when 29.3% qualified -- marking the fourth highest percentage overall, dating back to 1981. The last -- and only -- time we saw at least 20% of optionable stocks hit weekly selling climaxes twice in such a short span was during the financial crisis.

160126sellingclimaxes2

So, what are the implications of selling climaxes? Based on Prybal's third chart below -- which looks at weeks in which at least 300 stocks hit selling climaxes, or approximately 10% of all tickers -- the picture is less than encouraging. The average 10-day SPX return following the last 15 signals is negative 0.5%, with just 40% positive -- which compares unfavorably to typical anytime returns of 0.2%, with nearly 60% positive.

Going out further, the picture doesn't look much better. Even one year out, the SPX averages just a 2.6% gain and is positive 58% of the time, which pales in comparison to the anytime return of 9.6%, with 84% positive. In other words, last week's rebound from Wednesday's low is no guarantee that outsized returns lie ahead.

160126sellingclimaxes3

Nonetheless, if you're still banking on last week's selling climax surge as a sign of good things to come, below is a list of the 24 highest-cap stocks ($50 billion-plus) that flashed. Obviously, space does not allow us to present all 999 tickers.

160126sellingclimaxes4

 
 

Which of These SUB-$5 Stocks Could 26x From Here? (AD)

He called a rare 11x on Tesla…

Then he called a 26x on Workhorse…

Then an even rarer 35x on Nio Inc…

Now Tim Bohen says these 5 tiny “America First” stocks are next up in 2025.

They’re trading for less than $5 right now.

But thanks to Elon & Trump’s new alliance…

They could be off to the races in Trump’s first 100 days.

And right now for a limited time…

You can get the names & tickers for just $1 here. (AD)

GRAND SLAM COUNTDOWN

 
 

Featured Articles from Trusted Partners:

🚀 One Stock Pick Could Change Everything in 2025
What if one stock pick could define your success next year? Get 10 expert-vetted stocks set for 2025—plus 5 bonus picks to watch now. Get the Report →

🆕 New Options Need New Trading Strategies
Zero-DTE options are the newest (and hottest) options to trade.  Professional traders have rushed into the market and are making a mint.  Don’t get left behind - learn all about these options, how to trade them, market setups to profit from, plus much more. Download now →

👀 Revealed: 3 Defensive Stocks for Your Portfolio
Worried about the market? This free report reveals 3 under-the-radar defensive stocks for uncertain times in any kind of economy.

 

 
 

FREE Report Download

 

Follow us on X, Follow us on Twitter