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SharePlanner (< 20)

SharePlanner Reversal Indicator

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July 08, 2012 – Comments (0) | RELATED TICKERS: SPY

We are finally starting to get extreme readings in the SPRI for the first time since this rally began back on 6/4 when the market hit its lows. That doesn't mean you get rid of your long positions, and we have not yet gotten a reversal signal. However, it doesn't mean you take this lightly, and what you should be doing is tightening those stops so that in the event we do reverse here in the next week or so, you don't give back all or the majority of your long-profits from the past month.

There's no doubt that the weakness we saw late last week could be bought up and push the market beyond recent highs, but what you don't want to have happen is allow for those existing profits to vanish if that does not happen. 

Stay Cautious, My Friends!

Here's the SPRI.

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 to pay the closest attention to 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 that goes against the positions in my portfolio, I, often times, look to take profits in those positions or at least hedge against them.

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