Point 1 - Buying Climax
In February 22 2018, Barclays (LSE:LON:BARC) rose quickly with an ultra- high volume despite bad news. The spread of the bar is wide and there seems not to be any sign of selling pressure but despite the apparent dominance of the demand the price can’t close above the resistance around £210.0. This happens when an unexpected and strong supply overcomes demand in an upward move; this process is called buying climax.
Point 2 - Automatic Reaction
After a Buying Climax we wait for a technical rebound called Automatic Reaction that leads the price back and shows that a strong supply took control of the market. Actually, a sharp reaction takes place and drives Barclays back around to £200.
Point 3 - Secondary Test
In point 3 the price climbs up again in the same area of the previous buying climax described in point 1, but this time the volume is not even half of the previous volume. This fact shows that demand burned out, the price can’t go any further.
Point 4
The market comes back at the resistance level met at point 1 and 3, but this time the price can’t even reach the resistance quote and the volume is lower than before.
Point 5
The lack of demand causes the market to fall promptly from the resistance toward the support at £205 with an increasing volume. This is the first time we notice not only the decrease of buying but also an increase of supply in a downward move.
Point 6
The price reacts sharply from the support toward the resistance and closes above the level. This was such an unexpected reaction because of lack of demand, but we have to wait on the following days to decide if this movement is true or fake. If the price will fall from the resistance back into the trading range then we will know for sure that a distribution is going on. If so, this sharp upward move will be called up-thrust after distribution.
Point 7
In point 7 we have the confirmation that at point 6 an up-thrust after distribution took place, the price crashes down from the resistance with a wide bars spread proving that supply overcame demand. This is what we called a classic Sign of Weakness.
Conclusion
We think that the distribution process will drive the market down for a while, but before collapsing the price will likely pull back again around £210 to gather some more supply orders. It is appropriate to wait for this back up move before liquidating buying position or opening brand new selling short orders.