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SharePlanner (< 20)

SharePlanner Reversal Indicator

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July 06, 2011 – Comments (1) | RELATED TICKERS: SPY

For those who are curious, the reversal indicator perfectly time last week's market bounce and since then it has been on one incredible tear, with it already halfway back to the other side of the reversal reading. I certainly don't think we'll see the same kind of price move that we saw last week, but ultimatley I think we'll continue to move higher, and possibly even challenge new recovery highs. The only thing that does look problematic to me is the head and shoulders pattern forming recently on the S&P daily chart, which I plan on keeping a close eye on. 

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 SharePlanner Reversal Indicator.

1 Comments – Post Your Own

#1) On July 06, 2011 at 4:04 PM, davejh23 (< 20) wrote:

Most indexes have already reached extremely overbought territory.  What do you think of the nearly vertical move last week and the break well above the upper bollinger band?  It's far more common to see a break of the lower bollinger band, which often signals a near term reversal.  It's not very common to see this kind of break of the upper band, and it almost always precedes a significant move lower. 

What do you think of the strength in the dollar this week?  Traders seem to be treating it like a very short term blip and ignoring it.   If the strength continues over the next couple days, this could set us up for a sharp move lower in stocks...as sharp as last week's rise.

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