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NYSE Reversal Indiciator



March 30, 2011 – Comments (2) | RELATED TICKERS: SPY

It has been a long road for the  bears these days, and could get even longer based on what we are seeing with the NYSE Reversal Indicator. The tops on this chart signals quite decisively turns in the market, but those turns happen for only a short period of time these days as bad news tends to get priced in instantly and not over a period of time. So going forward, if you are short this market 1) I extend to you my sympathies - I too, have experienced before that horrible feeling in the pit of your stomach 2) Start covering your positions, and begin entertaining opportunities to the long side.

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.

2 Comments – Post Your Own

#1) On March 30, 2011 at 3:05 PM, davejh23 (< 20) wrote:

Stochastics on the weekly chart are just today showing a trend change.  However, on the daily charts, a short term reversal was signaled at the recent bottom and stocks are already looking overbought again.  While now is probably a good time to be researching buying opportunities, caution is still's not that uncommon to see rebounds like this that create short term double tops and precede longer term trend changes.  Considering that everyone is starting to slash Q1 GDP estimates (likely to be followed by earnings estimates), there appears to be much more downside risk than upside potential.

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#2) On March 30, 2011 at 3:11 PM, davejh23 (< 20) wrote:'s not comforting that the debt ceiling was breached today without a vote to raise the ceiling either.  While probably not a huge concern, since there's about a 0% chance that it won't get raised, this is the kind of confidence shattering gov't behavior that leads to hyperinflation.

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