Looks Like an Exhaustion Gap

The market strength of the last two weeks appears to be running into a bit of difficulty, even though it continued yesterday. I note the gap on the day, the early high, the later test of that high, but no further progress. The result was a somewhat square entry on the chart, coming after the gap, producing what begins to look like an exhaustion gap.  In addition, the continued strength has now put both the 5-day and 10-day moving averages of the Arms Index into quite overbought territory. There is no turn yet, but I think we are getting close to another pullback. 

Traders who are very aggressive might go to the short side here for a drop that appears imminent. This would be fighting the trend, always risky, but perhaps justified because of the overbought indicators. More cautious traders could wait for a downturn to start. Another approach, as outlined in my book "Stop and Make Money" would be to have stop sell orders waiting just below current levels and move them higher if the rise goes further....257 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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