It has been a long road for the  bears these days, and could get even longer based on what we are seeing with the NYSE Reversal Indicator. The tops on this chart signals quite decisively turns in the market, but those turns happen for only a short period of time these days as bad news tends to get priced in instantly and not over a period of time. So going forward, if you are short this market 1) I extend to you my sympathies – I too, have experienced before that horrible feeling in the pit of your stomach 2) Start covering your positions, and begin entertaining opportunities to the long side.

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.

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