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SharePlanner (< 20)

SharePlanner Reversal Indicator

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November 05, 2011 – Comments (0) | RELATED TICKERS: SPY

It's been a hectic couple of weeks in the stock market recently and based on the indicator below, we are reaching a point where, as traders, we need to look for places to start booking gains on our long positions. You have some news after the close on Friday about another CME notice that raises initial margin requirements to 1.0 across the board on all margin products. Then you also have additional Greek uncertainty still, and fractures in the bailout coalition. Not to mention, the market is as overbought as it has been in quite some time. 

For those of you who are not familiar with the SharePlanner Reversal Indicator, here's a 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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