SharePlanner Reversal Indicator

The reversal signal we had been looking for the past couple of weeks, finally came to fruition and as you’ll note below we’ve got a clear bearish reversal, that is also confirmed by the RSI as well. Price action shows a convincing bearish wedge the S&P continues to trade in, but has not broken down and out of it yet. Heading into next week, I would be careful about adding many new long positions, trust the stops on the existing ones, and if the market shows a strong hand to the downside, it’s best to believe it. 

That’s the plan for me at least. 

Here’s the SPRI.

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.