With two consecutive weeks of price rallying in the broader markets, the NYSE Indicator is showing a reversal in mid-stream, which does not occur all that often. In a little more than two years, we’ve seen four attempts by the market to reverse the course. Of those four times, three of them were traps that resulted in false reversals that ultimately saw the indicator get back on course and head back in its original direction. The one time this did not occur, was back in September when the market finally bottomed from the summer sell-off and bounced hard and fast resulting in the longer trend that the market is still a part of to this day. But when it did pre-maturely reverse like it did back in September, it was pretty close to the bottom of the indicator already, while the other three fakeouts were in midstream, much like we are right now. 

For those of you who are not familiar with this chart, here’s 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 NYSE Reversal Indicator.

    You are unauthorized to view this page.

You Might Like

  • How to use Moving Averages for Swing Trading

  • Swing Trading Venezuela following the Maduro capture.

    When Geopolitics Hits the Wires: Lessons from Iran to Maduro

  • analyzing volume in your trade setups.

    Swing Trading Using Volume Analysis