Stocks & Commodities V. 23:2 (88-89, 107): Charting The Market by David Penn
WHEN SELLERS SELL OUT
Writing about “The Selling Climax” in Technical Analysis Of Stock Trends, authors Robert Edwards and John Magee observe that:
Most true Selling Climaxes, if not all, have been produced by distress selling … They have come at the end of rapid and comprehensive declines which exhausted the margin reserves of many speculators and necessitated the dumping of their shares at whatever the market would bring. This process is progressive — feeding upon itself, so to speak — with each wave of forced sales jeopardizing another lot of
margined accounts, until at last millions of shares are tossed overboard, willy-nilly, in a final clean up.
Bad? Good? Indifferent? For Edwards and Magee, it depends on where you stand as a trader.
Such is a Selling Climax in which the total turnover may
exceed any single day’s volume during the previous upswing. It is a harvest time for traders who, having avoided the bullish infection at the top of the market, have funds in reserve to pick up stocks available at panic prices.
It is hard to overstate the value of Edwards and Magee’s book when reading through chapters like “The Selling Climax.” An instructional guide, a market history, and a template for sound trading, Technical Analysis Of Stock Trends was, interestingly, one of the few sources I could find that spent a good deal of time dealing with the market phenomenon known as the selling climax.