How to Spot a Blow Off Top in the Markets

We had a subscriber reach out to us asking about how to identify a “blow off top” or “blowoff top” in the stock market. (Click chart to expand).

They’re relatively easy to spot – most easiest to spot AFTER they happen. However, investors and traders can often find clues of one forming on the horizon.

In this example, we’re using Albertsons Companies Inc (Ticker: ACI).

Price began to break out in August of 2023, experienced a blow-off top in mid-September, and has fallen since.

To make the above chart simple to understand, we’ve narrowed it down to as few components as possible. We’re focusing on PRICE ACTION and VOLUME alone here.

As price broke out from the base in August of 2023, volume did NOT accompany the break out. As the stock beagan to break out, volume should have risen with it (see “yes!” on the chart). The volume only began to pick up when traders noticed the breakout and started buying due to “FOMO” (fear of missing out) in September of 2023, a few weeks after the breakout (see “no!” on the chart).

This volume surge POST-breakout indicated institutions selling their shares into the hands of FOMO retail traders. As a side note: September is also a bearish month historically, so the odds were certainly against the stock continuing higher at this time of year anyway.

After the peak, you’ll notice a pure selling day as highlighted in the yellow box – the OHLC bar indicates price opened near the high of the day, price closed near the low of the day, and the volume a day or two later was the highest it had been in months.

This pattern of pure selling throughout a day in combination with extremely high volume near or during the day of the “emotional day” is what provides nearly indisputable evidence of a “Blow Off Top” in the markets.

Those traders who bought during this day in September of 2023 have been left “holding the bag” and will be taking substantial losses the longer they wait before selling.

Remember: Avoid FOMO and trade only what you see.