Examples on indexes

Signals applied to the Dow Jones Industrial Average and the Nasdaq Composite Index. Getting the right market direction is fundamental to successful stock-trading.

The Climax Low flags are shown in blue, the Follow-Through flags (part of the CANSLIM system) are purple, and the Climax Highs are red.

Dow Jones Industrial Average (1)

the Dow Jones Industrial Average during a choppy period

The Climax Low signal (shown in blue) is designed to pinpoint a reversal upward off a low, ideally to the exact day. It's particularly effective on the larger market-cap stocks and the market indexes.

Dow Jones Industrial Average (2)

The Follow-Through signal (shown in purple) is is based on William. J. O'Neil's method of reading the daily market averages, as described in his bestselling book "How to Make Money in Stocks". The Follow-Through action confirms the start of a new bull market. It's especially reliable and powerful when preceded by a Climax Low signal (shown above in blue, near the exact bottom of the pattern).

Dow Jones Industrial Average (3)

some highs in The Dow Jones Industrial Average

The Climax High flags (in red) are designed to pinpoint a reversal downward off a high. The Climax High is similar to an upside-down Climax Low, but not identical. It works best in a choppy, downtrending market as shown. Fortunately, it's also an excellent contrary indicator when the market doesn't go down. If the market winds up taking out the high of the day of the Climax High, that's usually an excellent buy signal.

Nasdaq Composite Index (1)

nasdaq index with various flags and indicators applied

This chart and the following ones show Nasdaq Composite Index in a variety of situations with the Climax Low, Follow-Through, and Climax High flags applied. Of particular note is the sequence of a Climax Low (not just any low:-)) and then a Follow-Through signal stemming from that low. It can be a very powerful combination, signaling the start of a major bull run.

Nasdaq Composite Index (2)

More Climax Lows (in blue), Follow-Through flags (in purple) and Climax Highs (in red). The Climax High flags are looking great in this particular market. But if they don't work, i.e., if the market winds up taking out the high, that becomes a contrary buy signal.

The Climax Low and Follow-Through signals don't always work either. Sometimes a rally will be extremely short-lived. Fortunately, with the Climax Low flags, some point just below the low of the day can be used as for a stop-loss so that the risk is well-defined. The Follow-Through flags (in purple) can be handled in a similar fashion.

Nasdaq Composite Index (3)

follow-through upward off a low in the Nasdaq

More Climax Lows (in blue), Follow-Through flags (in purple) and Climax Highs (in red). Once again the combination of a Climax Low and then a Follow-Through day signals the start of a big new bull run. The Climax High signals indicate a potential top, but they also catch the very short-term tops. In a bull market there will be numerous bouts of selling on the way up. The Cliamx Low signals aren't perfect either. The leftmost one failed right off the bat. It's supposed to mark a low, so if the low gets taken out it's no longer a buy. It becomes a sell or short signal.

Nasdaq Composite Index (4)

This time we had two Climax Lows, and two Follow-Through flags. Awesome.

Nasdaq Composite Index (5)

nasdaq market index making a big, sloppy base

The market makes a big, sloppy cup-and-handle basing pattern replete with Climax Lows and Follow-through flags. It moves up and breaks out, but failure is eminent. More basing is needed; the market appears to be entering a choppy phase.

Nasdaq Composite Index (6)

stock market chart showing a failed breakout

The Climax Highs, Climax Lows and Follow-through flags as of 12/27/2007.