Gap - exhaustion gaps
Definition
An exhaustion gap is a technical signal marked by a break lower in prices (usually on a daily chart) that occurs after a rapid rise in a stock's price over several weeks prior.
This signal reflects a significant shift from buying to selling activity that usually coincides with falling demand for a stock. The implication of the signal is that an upward trend may be about to end soon. This technical signal marks a potential change from an upward trend to a downward trend.
The principle behind an exhaustion gap is that the number of likely buyers has diminished and sellers have aggressively stepped into the market. The buyers may be largely exhausted implying that the upward trend is likely about to stop as sellers take profits from a previously extended rise in the price of the stock.
Exhaustion gap at the end of run