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SharePlanner (< 20)

SharePlanner Reversal Indicator

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November 27, 2011 – Comments (0) | RELATED TICKERS: SPY

There's a lot of  talk about an IMF bailout and Germany and France forging a strong pact together to save the European union which could create havoc for the bears next week if you're not careful. As a result, I strongly recommend that you take precautions if you are still short this market. The euro is already showing strength this Sunday in trading which also happens to be bullish for the markets (traditionally speaking), and once the markets open up at 6pm eastern time, I expect we'll see some sort of bounce in the futures as well. 

As for the SharePlanner Reversal Indicator below, the weekly indicator is still showing signs that this market wants to head lower, but remember, I consider this to be a mid-term perspective and not a short-term. That's why in the short-term I expect to see us to bounce some, even if it is this week only. We are incredibly oversold, and the prospect of adding to, or not protecting existing gains is absolutely ludicrous at this point. 

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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