NYSE Reversal Indicator
Speaking to a number of different traders lately, I can tell that this market is beginning to irritate a large number of you, as the consolidation from the past couple of weeks, means numerous head fakes in both directions, where opening gaps in either direction has little to do with where the market plans on actually finishing up at. With that said, I think the recovery we saw on Thursday, and the follow through on Friday (albeit a difficult one), is boding well for stocks, and leads me to believe we are more likely than not to see some positive movements this week.
The NYSE still points up, but could run into some resistance in the next two weeks, that could lead us back down in the short term. It's a very tough market of late, and you have to be willing to take gains quickly, as they tend to reverse on a dime, and go the opposite direction - and that goes for both bulls and bears. what appears to be certain downside one day, is positive momentum the next. So stay on your toes (as you always should!).
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.