The final step in The Cycle Of Price emerges during the topping formation when you begin to see the price extend high above the moving averages. Oliver Kell uses the Exhaustion Extension to capitalize on over-exuberant price action as a place to take profits by selling into strength.
The Exhaustion Extension is a euphoric blowoff price movement well above the 10-day moving average, a sign that the stock may need time to form a new base.
When an Exhaustion Extension forms, begin to look for additional signs that the stock may be topping and then any warnings that indicate weakness. When multiple Exhaustion Extensions form, the stock will most likely need time to consolidate, pull back, develop a new base, or create a longer-term top.
Extreme greed takes over and pushes the price to unsustainable highs. When resistance is found, and sellers begin taking profits, the price will fall back down, requiring time as it consolidates the gains.
Price Extends Above The 10EMA
As the uptrend progresses, the price action will become more euphoric as it rapidly advances to new highs. TheExhaustion Extension occurs when the price significantly stretches up to an unsustainable level away from the 10-period Moving Average, then quickly reverses back lower.
The Exhaustion Extension signals that the uptrend is nearing its end and provides an opportunity to scale out into strength.
Symbol: SMCI
Company: Super Micro Computer
Year: 2024
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Recognize an Exhaustion Extension when the price is significantly above the 10-day EMA.
When you see an Exhaustion Extension begin to get defensive. Use this euphoric price action to reduce your position into strength.
As multiple extensions form, reduce exposure as you wait for another base to develop. Be cautious and look for any new signs of weakness to emerge.
Eventually, the price will drop below the moving averages, forming a Wedge Drop, and a new downtrend will begin.