Stocks have reached a 'buying climax'

The S&P 500 last week experienced one of the classic indicators that the top is in. But it's bullish, for now.

According to Jeffrey Saut, the chief investment strategist at Raymond James, the S&P 500 recently entered the final surge of a so-called buying climax, characterized by a spike.

The climax is usually followed by a pause or a pullback, as demand slows down.

All the major stock indexes jumped to all-time highs after the election, including the tech-heavy Nasdaq, which lagged the S&P 500 and the Dow in terms of performance this year. Investors decisively moved money from bond funds into equity funds on the assumption that higher inflation under the next administration would be negative for bond returns.

But last week, the S&P 500 closed lower for the first time since the post-election rally.

"The pause has permitted the stock market's internal energy to rebuild, suggesting the S&P 500 (SPX/2191.95) is getting close to grinding higher into our envisioned February short-term "timing point,"" Saut said in a note on Monday.

The idea of a buying climax assumes that with all potential demand used up, the end of the current phase - in this case, the seven-year-old bull market - is near. However, Saut was not immediately bearish on stocks.

He said that's because earnings are expected to rebound for the foreseeable future, after bottoming in the second quarter and turning positive in the third. Also, energy-sector earnings may improve if oil prices continue to rise as the Organization of Petroleum Exporting Countries (OPEC) implements its agreement to limit production.