NYSE Reversal Indicator
If you're like me, you probably expected the NYSE Reversal Indicator to be pointing straight down. Instead, it is the exact opposite. So what does this all mean? Well, let me give you a few observations that come to mind 1) Bears only managed to push the market down last week, by a smidgen, which isn't the idea amount of follow through the bears were likely looking for. 2) The candle on the weekly charts comes across as quasi-bullish since the long upper shadow, coupled with a doji formation, showed that the bulls did show some strength at times on the daily chart, but overall couldn't bring it all together. So then, there is some willingness to buy this market - just not enough. 3) The selling in the broader markets has come largely on the heals of the margin requirements being dramatically increased, and thereby forcing bulls out of their positions which led to some commodities seeing +30% sell-offs in just two weeks (i.e. Silver (SLV). So the question has to be - in the short-term, how much more downside should we expect from the commodities. There is a lot of fear priced in right now, which could ultimately lead to a sizable bounce at some point .
Lots of things to think about for the week ahead - that much is certain.
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