What Is a Blowoff?
A blowoff is a term in technical analysis that refers to a sharp price increase that comes after a long period of price appreciation and is followed by a fall in the price. A blowoff is seen as a rally's last breath and is a highly bearish sign. Market technicians read chart patterns for signal highlighting a sharp rise and precipitous drop in both trade prices and volumes within a short period of time. Generally, regarded as four days to as long as six weeks.
Blowoff is also often called a "blow off top."
This large and dramatic price movement is generally seen at the peak of a market or stock. The idea behind the bearishness of a blowoff is that it signals the activity of the most irrational and overly exuberant market participants, who, wanting to take part in the rally, momentarily push up the already-overvalued stock.
Late in the business and market cycle, commentators and the like often speak in terms of parabolic blowoffs which are characterized by patterns signifying panic buying quickly followed by a sell-off, which in turn in called a blowoff move or exhaustion move. Common refrains include, "are you ready for the next [market] blowoff" or "prepare your retirement portfolio for the coming blowoff." Thus, market psychology and the hysteria surrounding market and asset bubbles tend to accompany the talk of blowoff tops.
In reality, although most investors can get a sense fundamentals technicals, or even general market sentiments are creating unease, few have the conviction to go against the grain and remain contrarian. Even worse, when monitoring asset price charts for signals and patterns, it's difficult to time market reversals. As such, it's not uncommon for traders and money managers to sell into a seemingly blowoff top, only for the market to continue to advance higher.