SharePlanner Reversal Indicator

Like last week, the SPRI is still showing itself at major extremes from evey angle, and the likes of which hasn’t been seen since the March/April recovery from 2009. As I’ve been saying for the past week, now is not the time to be jumping on the bull’s band wagon, as risk to the downside is extremely elevated. 

I’d also say that it is worth, in this instance, to wait for price confirmation before getting overly bearish either. Meaning, I wouldn’t dump everything here into short positions, until you find on the daily chart the price action on the S&P break out of the consolidation/triangle that it has been trading in for the past couple of weeks. 

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.