After a vigorous two-day rally, the momentum has slowed, but small caps are outperforming. The main area of weakness is Apple (AAPL) and its suppliers, which are seeing a "sell the news" reaction to Tuesday's big new product event. I suspect this group will find support fairly fast, but at the moment the flippers are at work and the bears are hopeful.
Breadth is running a little negative and the number of new 12-month highs has dropped to about 140 so far. That is nothing unusual when the market becomes technically extended.
The most important thing to keep in mind when navigating this action is that overbought technical conditions do not suggest a sudden reversal. What is most likely is that there is some sideways action to digest the gains. There are still plenty of underinvested bulls that want to put cash to work and that is why markets like this can be so sticky to the upside.
Another group of interest is that of China-related names such as Weibo (WB) , Alibaba (BABA) , 58.com (WUBA) and JD.com (JD) making strong moves. This action in China names illustrates that there is still a very high level of speculative interest out there.
A distaste for calling market tops and more selective stock picking is the best way to navigate the market at this point. Just because it is extended doesn't mean it is going down.