Figure 1: Gap up and doji. Exhaustion?
Is this the exhaustion that marks the market reversal? Next weeks will tell. Meanwhile, here are some clues:
1. Skew > 135 for both Thursday and Friday. Historically this has meant high risk for correction.
2. Even with this week rally in large caps, market breath is weak.
Figure 2: Breath is weak.
3. Defensive sectors are still leading.
Figure 3: Defensive stocks stronger than cyclicals.
4. Oscillators are starting to roll over. This is too already to call. Typically, the oscillators will need to turn negative before an air pocket. But given the nervousness in the market, fast drops cannot be ruled out.
Figure 4: McCellan and MACD are starting to roll over.
Overall, we have a strong set-up for reversal in next few weeks.