Volume measures the enthusiasm of buyers relative to sellers. Higher prices and lower volume indicate the market is rallying because there is a shortage of sellers, not because buyers are enthusiastic. Sooner or later the market will reach a price level that attracts sellers. When this occurs, prices will fall substantially. A parabolic rise in prices and a sharp increase in volume are unsustainable, which typically results in an exhaustion move.
Exhaustion is characteristic ofan important market turning point.
Its significance will depend upon the nature of the buying frenzy relative to its time span. A buying panic spread over four or five days will have far less significance than one that gradually builds over a number of weeks. The reverse set of circumstances epitomizes a selling climax. The implications and principles for a buying panic hold true for a selling climax, butin this case the trend reverses from down to up. Selling climaxes normally, but not always, represent the final low of a declining price trend.