What Is A Blow Off Top?
A blow off top is known as a parabolic move on a stock or index. It happens at the highs of a chart and usually coincides with massive short covering and buying from the retail investor. As this flurry of buying comes in, institutions usually sell into it, distributing shares.
This is usually the final straw as the last little investor jumps in, covers and goes bullish. It is usually a top because following the last bulls jumping in, there is no one left to buy. The only thing left is institutional selling.
The parabolic nature of the market in the last few days is very likely the start of a blow off top. The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) has jumped $6.00 from its lows last Friday. That is an insane vertical move.
Is The Top In?
With the Dow Jones Industrial Average trading below 15,000, the top is likely not in. The most probable scenario will be for a move through 15,000, then the top is put in. Following a blow off top, the usual correction is 10%.