TDR Capital International - Growth Stock Rising Too Fast? How to Tell If It Will Roll Over

KOWLOON, Hong Kong - Sept. 5, 2023 - PRLog -- This is why the CAN SLIM elite are continuously on the lookout for signals that their champions are approaching the dreaded climax top. Being able to identify this important signal would have allowed MicroStrategy (MSTR) investors to lock in returns of up to 700% from the company's late September 2020 breakthrough, as we'll discuss later.

A climax top occurs when a stock climbs so quickly that it exhausts itself and goes downward. Following huge gains in the 2020 market boom, a number of equities have shown this indication in recent months.

How to Identify a Climax Top in Growth Stocks

There are many key indicators that a climax is on the way. An exhaustion gap occurs when a stock suddenly gaps higher after months of increases, or the highest daily point gain occurs after a lengthy rise.

A climax is defined as a stock increasing by 25% to 50% in three weeks or fewer. This usually happens at least 18 weeks after a base's breakout. The stock's rise suddenly becomes out of proportion.

The 200-day moving average is another important indication. When a stock goes 70% to 100% over its 200-day moving average, it is indicating a climax run.

It is critical to recognize them since they are often followed by a harsh reversal. MarketSmith CEO Scott St. Clair told Investor's Business Daily that the rewards are enormous.

"Climax tops are the best way to lock in gains because they are so large if you can capture them," he says. "The problem is that they can keep going after you sell, so it's difficult to sell them knowing they'll probably be higher the next day."

St. Clair recommends a cautious strategy to reduce position size in order to maintain earnings while not missing out on potential upward surges.

He recommends selling 20% of the position every day for five days in a row for hesitant sellers, or 25% of the position each week for four weeks in a run. "This relieves the pressure to get it 'perfect,'" St. Clair said.

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