Climax Top in TZOO

How can you tell when a market is exhausted from a long term up-trend?

The current market leaders will start to form climax tops after huge gains over the past 6, 12 or 18+ months.

So, how do we identify a climax top?

The following characteristics are typically found in a stock that is forming a climax top:

  • A quick run-up or accelerating gains over a short period of time after a long term up-trend. The gains will be much larger during this short term run, proportionally, than the entire up-trend.
  • A large gap-up after several months of a steady up-trend. Investor’s Business Daily (IBD) calls this an “exhaustion gap”.
  • The largest daily and/or weekly volume of the entire up-trend.
  • A large single day point gain, the largest of the entire up-trend.
  • An intraday move to new highs on above average volume but a close that results in a loss.
  • A stock that is trading 100% above it’s 200-day moving average. IBD states that a stock trading 70% above its 200-day moving average is showing exhaution.

Take a look at the $TZOO Travelzoo charts (daily and weekly).

As you can see, TZOO has confirmed the following red flags for a climax top formation:

  • 10 of the past 13 days have been up days.
  • A 68% gain over the past 13 trading days and a 100% move over the past month. Stock is up 900%+ since March of 2009.
  • The largest daily and weekly volume of the entire run.
  • A new high intraday with a close that resulted in a loss (today: a new high with a reversal to close down 3.69% on volume 485% larger than the average).
  • The stock is trading more than 130% above its 200-day moving average.

With all that said – what should you do? I suggest that gains are locked in, at least a portion of your position 1/3 or 1/2 at a minimum.

In addition to locking in individual gains (in examples like TZOO), I highly suggest that you start to watch all market leaders and the general market indices for red flags.


  1. Don’t feel stupid in climatic runs it’s never easy to pinpoint the actual top. Obviously, more importantly is the insight given at any beginning of the run. The process of discovery – the perception of future values not discounted in present market prices.

  2. Jimmy,

    No one feels stupid. Traders put on positions and have to close some out because they go against the analysis. I am yet to meet a perfect traders, if fact, most are wrong 40-60% of the time or more in some cases and ares till profitable.

    Lastly, I wouldn’t be so sure if a top is still not near. We’ll see if today’s action follows through.

  3. jimmyJ,

    TZOO is now down nearly 30 points from the run-up? Where’s your latest comment?

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