I’ve got for you the updated chart of the NYSE Reversal Indicator (the name I have aptly given it). As you can see we have made some nice progress coming off of those oversold conditions and is quickly making its way back up top.
The NYSE Reversal 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 in order to post then 1) I wouldn’t be posting it – I’d save it all for myself, or 2) I would sell it to Goldman Sachs for an ungodly sum of money. But it isn’t perfect (I wish it was) 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 respect to the direction that the indicator itself is pointing to.
Next week will be very interesting with quarter end on Wednesday, followed by the employment number on Friday. There is a load of reports to take in and could shape up to be quite a volatile week in either direction.
Here is the NYSE Reversal Indicator.