SharePlanner Reversal Indicator

The market did what few people expected this week and that was to go on an incredible tear to the upside, forcing a lot of bears to cover their short positions and incur some heavy losses in the process. In fact, most charts out there that I’ve been going over are, for the most part, showing gains of +10%. So we are no doubt overbought in the short-term, and the rally, took us only up to key resistance levels. So my belief that this market has further upside in the weeks to come is to say the least pessimistic. However, in the chart below I do go over another scenario that could play out for the bull’s favor. 

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, 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 SharePlanner Reversal Indicator.