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Did the Market Just Give Us a Signal Nov 7 2026
Get Ready, Get Set.... for what?
Maybe selling some stocks..
Readers of Money Matters might remember an economic term used here called “climax top”. A climax top is an event that technical stock analysts believe can sometimes indicate a change in stock direction is coming. It is applicable to both individual stocks and indexes like the NASDAQ, S&P 500 and the DOW JONES INDUSTRIAL AVERAGE (DOW).
The climax top refers to when a stock price swings wildly and uncharacteristically when compared to its average price variations. For example, a stock might historically move up or down a few points a day. Then a period arrives when it starts to move up and down by 20 or 30 points each day.
At that point, if the stock had been steadily climbing, but then starts swinging up and down wildly, it could be interpreted as a climax top.
When this occurs, a downward change in direction might be coming. The same holds true of a climax bottom.
A stock continues to fall over a long period of time, then starts to swing wildly and the continued downward direction comes to a halt. This could signal a climax bottom.
Climax tops indicate a downward direction might be in the cards will a climax bottom might indicate a rally in the stock may be coming.
Last week’s stock markets could arguably be exhibiting a climax top. The day after the election the DOW rose 3.03%, up 1,569.00 points. The next day, the DOW dropped 3.44% with a 1,833-point hammering.
Needless to say, the moves on both days were very excessive compared to historical averages.
Analysts argued the reasons, but the truth is no one really knows, nor could they, why the markets acted so strangely. When the DOW ran, some said it was because the democrat platform made historic gains. When the DOW cratered the day after, many argued it was the realization that the gain in democratic-socialist seats could negatively weigh on the capitalistic `system` as a whole.
There were many other theories about why the markets bounced around so radically and it was likely a combination of reasons instead of just one.
Why markets move is not an exact science. Never has been.
It’s because the day-to-day movements of the markets is only the sum of all the beliefs of its millions of participants in it at any given time, and predicting that is obviously impossible.
Technical stock analysts never care about the reasons stocks move. They only look at the price movements themselves, chart them, and then draw their conclusions from those charts.
Sometimes called “chartists”, these movements are then compared to previous movements over a long period of time. Their `system` is something like “what happened the last many times prices did this or that”, then extrapolate that into a prognostication.
Sort of like fishing. “Last time I used a purple lure and jerked it right and left, I got a fish, so if I use a purple lure again today and jerk it right and left, I predict I might catch another fish”.
An odd example I know, but you get the picture.
Climax tops and climax bottoms are a theory for a reason. In the past, uncharacteristically wild up and down movements in the stock price has many times (but not always) led to a complete change of overall direction in a stock or market index.
We can agree that last week’s two-day market swings, up one day then down the next, were very unusual and could be interpreted as a climax top. We will know soon enough. But if it was a climax top, the stock market run over the last four years could be coming to an end, and it is possible it could signal a more drastic fall going back to 2020, 2015 or even 2009 levels. We had a similar swing in April,2025. After that swing, the Dow fell about 3.6% but soon recovered.
Only time will tell, of course, but some chartists would argue the odds have increased that there will be darker times ahead for the markets.
“Watching the markets so you don’t have to”
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(As mentioned, please use the below disclaimer exactly) THANKS (Regulations) This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License OL34249.
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