Sooner or later, even the most complacent holder becomes disturbed by the downward drift in prices. Selling pressures increase and become more widespread. Volume increases as shares of stock (or futures contracts, or option contracts, and so forth) pass from weaker, now nervous hands into the hands of aggressive buyer who are stepping in to take advantage of the developing selling panic.
This transition from slow, steady, complacent decline to aggressive, nervous selling and finally to nascent aggressive buying is referred to as a sellmg climax. It is largely driven by aggressive and fearful selling-the urge to sell at any price. Buying climaxes following extensive market advances sometimes take place as well. The demands of aggressive buyers are met by savvy traders who are perfectly willing to part with the stock that is being demanded. Buying climaxes are less usual than selling climaxes, but one did take develop in certain areas of the Nasdaq Composil Index in March 2000.
Again, market declines of any magnitude, even during intraday price swing (day traders, take note) frequently do not come to an end until trading volum increases, often dramatically.
Take note of the declines in the Dow Industria that came to an end in September 2001, in July 2002, and in October 2002. Each or of those significant market low points developed on sharply rising volume compared to the days and weeks surrounding the actual market lows of those periods To sum up once more, although market declines sometimes end with a Ion; quiet, base-building process, low trading volume during market decline is, at best a neutral indication. The most bullish development that can take place during major or serious intermediate market decline is a dramatic build-up of stock mark, volume following a period of falling prices. This build-up often develops during that sort of terminal downside spikes that characterize stock market selling climaxes.
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The Selling Climax
True or false: Conditions are bullish if market declmes take place on low volume? As a general rule, tlus is false–very false. This is a very common misconception. Long-term and serious intermediate declines that take place on low volume ten, to continue for some time. Low volume during market decline signifies two things. First, there is probably little panic on the part of investors; instead, there’s complicency Prices are likely to be declining not so much because of active selling, because buying demand is drying up. When buying demand slows, prices frequently fall under their own weight. Second, prices have not yet fallen to levels that will attract aggressive buyers. Buyers are remaining on the sidelines while the typical, still complacent investor retains positions even through periods of slowly falling prices.
