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NYSE Reversal Indicator

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November 08, 2010 – Comments (0)

The NYSE Reversal Indicator continues to work off its overbought conditions, and has a little bend to it right now, representing the huge breakout we saw last week. Further strength this week could reverse its course, and give us another buy signal. We have yet to really see any decent amount of selling creep into the markets of late, instead, when we got the "sell" signal on the NYSE Reversal Indicator, we got two weeks of consolidation, before finally breaking out. I ultimately believe this market goes higher, but we could see some choppy action in the markets, similar to the October consolidation, until it can work off the oversold conditions we are currently in. 

For those of you who are not familiar with this chart, here's quick tutorial...

The Indicator uses the advance/decline ratio with a stochastics overlay. The bottom half of the chart is the weekly candles of the S&P. The chart itself goes back two years. Some folks have criticized me for posting this chart in the past saying that it isn't 100% accurate - but if it was, as some think it must be, then I wouldn't be posting it - I'd save it all for myself and make an ungodly sum of money off of it. But it isn't perfect and there is always a level of error that you can expect from it. But overall, it is fairly accurate, and when the indicator hits certain extremes on the stochastics, it is often a good time to start hedging positions that are going against the direction of the indicators, or start loading up on short or long positions in-line with the direction that the indicator itself is pointing to.

Remember, the extremes are where you are wanting to pay the closest attention to, particularly where the %K & %D lines cross (i.e the red and green lines). This is typically where we begin to see changes in the behavior of the market - not always but quite often enough, to warrant our attention. What this tool is best for, in terms of what I use it for, is market timing and position building. When there is a crossover at one of the extremes that goes against the positions in my portfolio, I, often times, look to take profits in those positions or at least hedge against them

Here is the NYSE Reversal Indicator.

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