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SharePlanner (< 20)

SharePlanner Reversal Indicator

Recs

2

July 30, 2011 – Comments (0) | RELATED TICKERS: SPY

It was one of the hardest one-week stretches in the market for the bulls, but nonetheless, the market managed not to implode despite all the neanderthals in D.C. doing their best to accomplish otherwise. With that said, the SharePlanner Reversal Indicator took a bit of a dive this past week, reversing just before it hit the ceiling above (the more reliable area for reversals to occur). So I would be suspect of the downward turn we are seeing below, especially until the debt ceiling crisis is resolved. 

What I did find interesting though was the Head and shoulders pattern which looks eerily similar to the one we saw this time last year where we almost completed the bearish pattern before rocketing the market into the stratosphere. We are at that same exact stage here, and it makes you wonder with as oversold as the market is, that if we get an agreement on the debt ceiling here real soon, if that couldn't be a catalyst for a similar take-off like we saw last September. 

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.

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