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It's time to update you yet again on the SharePlanner Reversal Indicator. As we talked about last week, we have a full fledged reversal signal on hand, but not a breakdown (yet, at least) in price action. We started to trickle lower four days straight but had a magnificent bounce on Friday that basically wiped out those losses. 

So then, we head into to a new week with a myriad of economic headwinds facing the market, with no real solutions, and yet this market continues to ignore them (which is why personal biases are one of the worst hindrances to personal success in trading). 

One thing I am noticing though are the elongated shadows popping up within that bearish wedge on the weekly SPX chart (shown below) and often times those elongated doji candles are often times foretelling of weakness on the horizon - so be careful with your long positions and how many you take on.

Here's the SPRI. 

SharePlanner Reversal Indicator 8-4-12

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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ryan1Ryan (@shareplanner) specializes in swing trading strategies and is the founder of SharePlanner which he created to help and teach others on how to trade stocks better using multiple approaches and time frames. Each day you can count on Ryan to provide his trading advice as well as transparency in every trade that he makes. Ryan Mallory resides in Central Florida. More >>

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