DEFINITION of 'Climax'

A climax is a market condition that is characterized by escalated trading volume and sharp price movements at the end of a bull or bear market cycle for company shares, an index or a commodity. Climaxes are usually accompanied by extreme sentiment readings, either mass euphoria at market peaks or pessimism at market bottoms.


Market climaxes often occur at the end of long bull or bear cycles as investors presume that the trend presently in place is not going to reverse course in the near term. Climaxes generally result from a last rush of investors who finally buy into a rising market or sell into an ongoing market decline. In both situations, a climax usually signals the end of a long-running market trend.

Buying Climaxes

One of the clearest signals of the end of a bull market is a buying climax, during which volume escalates to extreme levels and bullish euphoria permeates media coverage of stocks, market indices or commodities. The key trait of a buying climax is the exhaustion of demand as the last buyers enter the market. The final surge of buying typically leads to price spikes, which may last for days, weeks or months. As demand wanes, prices can go into steep declines as sellers attempt to unload positions in the relative absence of buyers.

The end of the tech bubble in the year 2000 is a prime example of a buying climax. Starting in November 1999, the NASDAQ Composite gained 65% on its way to its buying climax high of 5,132 in March 2000 on steadily increasing volume, based on euphoria over the New Economy. Over the following 30 months ending in September 2002, the index declined by 76%.

Selling Climaxes

The beginning of a selling climax is often signaled by steadily increasing volume on the sell side of the market as growing pessimism accelerates the downtrend. As the selling climax approaches, the last sellers finally capitulate, driving shares sharply lower. Once the supply side of the market abates, growing demand can move prices substantially higher over a short period of time.

The rebound in oil prices in early 2016 is an example of a selling climax. After making a high in June 2014, oil prices declined steadily for 17 months, capped by a selling climax in January 2016. After making its selling climax low of $26.55 per barrel on Jan. 20, 2016, oil prices appreciated by 80% over the following four months.

  1. Up Volume

    A stock volume that closes at a price higher than the previous ...
  2. Volume Of Trade

    The total quantity of futures contracts bought and sold during ...
  3. Average Daily Trading Volume - ...

    The average amount of individual securities traded in a day or ...
  4. Down Volume

    A stock volume that closes at a price lower than the previous ...
  5. Bull Market

    A financial market of a group of securities in which prices are ...
  6. Bull

    A bull is an investor who invests in a security expecting that ...
Related Articles
  1. Trading

    Use Volume And Emotion To Tackle Topping Patterns (GERN, SLB)

    Selling short in a topping pattern offers an advantageous reward-to-risk profile, but it can be hard to find good entry prices.
  2. Trading

    Has Square Stock Topped Out?

    Square stock fell on heavy volume Monday, but minimal technical damage suggests that the decline will mark a buying opportunity.
  3. Trading

    Use Market Volume Data to Determine a Bottom

    Market bottoms often carve out classic volume patterns that let observant traders make fast and accurate calls.
  4. Trading

    The Most Volatile Stocks Intra-Day

    Four of the most volatile stocks intra-day on the Nasdaq and NYSE.
  5. Trading

    Essential Strategies For Trading Volume

    Looking to trade using volume? Have a look at these essential tips.
  6. Trading

    Time to Take NVIDIA Profits (NVDA)

    NVIDIA has rewarded shareholders with windfall profits but the time has come to pull up stakes and move on to another growth opportunity.
  7. Trading

    Trend-Range Alternation Spawns Trading Styles

    Markets cycle continuously between directional trends and compressed ranges in all time frames.
  8. Trading

    Wait Until Summer to Buy Bank of America

    Bank Of America posted dramatic gains after the November election and could now enter a correction that tests new support in the upper-teens.
  9. Trading

    Has Alphabet Topped Out?

    The tech giant's shares reversed after reaching a milestone at $1,000 and could be headed into an intermediate correction.
  10. Trading

    The Trade Desk Stock Enticing Momentum Players

    The Trade Desk stock has more than doubled in price since coming public and could head for triple digits in coming months.
  1. What indicators help define a bull market?

    Learn about a number of various technical indicators traders and analysts use to define and confirm the existence of a bull ... Read Answer >>
  2. What signals do traders watch for that signal a change in a bull market?

    Discover the various signals of bull market tops and what traders and analysts look for as signs of an impending bearish ... Read Answer >>
  3. How can I calculate a company's forward p/e in Excel?

    Discover why trading volume is higher when the price of a security changes. Supply and demand is the mechanism through which ... Read Answer >>
  4. What is the Uptick Volume formula and how is it calculated?

    Learn more about uptick volume, a measurement of the number of trades that take place during a time when an asset's price ... Read Answer >>
  5. Tame Panic Selling with the Exhausted Selling Model

    Discover what the exhausted selling model is and how it can be used by traders who are looking to profit from the panic sale ... Read Answer >>
Hot Definitions
  1. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  2. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
  3. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  4. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  5. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  6. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
Trading Center