ClimaxTop Booklet

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How To ReCogNIze SeLL SIgNALS

Climax Tps

Sell Rules: Climax Tops

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After already making a move up 18 or more weeks out of a first orsecond stage chart base, the stock suddenly accelerates. In manycases it will rise 25-50% in just one, two or three weeks.

Many times on the daily chart, youll see the stock go up sevenout of eight days, or eight out of ten days in a row. Often, one ofthe days will be the largest daily point gain of the entire move. Ona weekly chart, the stock will often have the largest weekly pricespread, from low to high, of the entire move.

Often the demand will be so great for the stock that it will create anexhaustion gap where the stocks lows for the day are higher thanthe previous days highs. It is important that this occurs after thestock has already made a significant move.

Excessive stock splits can be a signal that a climax top may be near.Either with a high frequency of splits, two or more in the last year orso, or high split factors, such as 3-for-1 or 4-for-1 stock splits.

On a weekly logarithmic chart you can draw an upper channel lineover several months, connecting the highs of at least three points.When the stock breaks above this channel line, it is a sign the up-ward move is getting out of control.

You might also see a wide weekly spread followed by a week thatretraces the same wide spread, from its low to its high, with vol-ume remaining high. It shows up as two parallel vertical lines we call

railroad tracks.With all of the above signals, it is important to remember that they oc-cur after the stock has already made a significant move.

While the climax top is one of the easiest to recognize it can be emo-tionally difficult to sell during this period. After all, you will be making alot of money as the stock makes these huge point gains. By sticking toyour rules, you will come out ahead as you preserve your profits ratherthan watching them vanish quickly.

As always, you can see more educational examples in Investors Cornerin IBD. Plus, visit our web site, Investors.com, to view more samplesin the education section and the Daily Stock Analysis video.

The charts on the next two pages give you definitions of key featuresincluded in IBD chart examples. You can use them as additional refer-ences as you go through this booklet.

We look forward to helping you become a more successful investor.

William J. ONeil


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