May 24th, 2008

An Alternative to the S&P Oscillator

It’s amazing, this power the “S&P Proprietary Oscillator” holds over investors and speculators. I don’t know who referenced it the other day but the hits on a page I wrote back on February 15 entitled S&P Oscillator, MACD and MTI just shot through the roof. Jim Cramer must have mentioned it again on his show (I used to watch him religiously but now think I’ve outgrown him) last night.

Back in February, Jim said:

“I know I am not a chartist, but I have sworn by two technical indicators all my trading life: the S&P Oscillator and the bull-bear ratio. Any time we get severely oversold, I hold my nose and buy, any time we get the bull cohort below 40%, I have to buy something, and when it gets too close to 35%, you have to cover all shorts and get long.”

My Market Timing Indicator (MTI) triggered a sell call after the close on December 27 and has been bearish ever since. I take that back, it issue a bullish call for two days recently … yes, for two trading days, after the close on May 15 to the close on May 19. Since December 27, the S&P 500 Index had been down as much as 13.7% (or March 10) and, as of yesterday’s close, is still down 3.5%. If you had followed the MTI as I did, you would have had a large cash position and you avoided panicking and rushing to sell at or near the low. Perhaps you even placed some hedging bets and bought some precious metals, energy stocks, foreign currency ETFs or Doubleshort ETFs.

I have 44 years worth of S&P Index closing data and have tried to replicate their Oscillator using methodology described in an excellent article entitled The Relative Strength Index (RSI) at the Needless to say, it’s been a waste of my time. I’ve tried all sorts of variables (for example, the traditional 14 day, 30-day, 60-day, moving averages of each) and have always found it too volatile and giving too many false signals. I believe I read somewhere that S&P charges $1000 for access to their oscillator data.

But you can get the same or better information here based on my MTI and it’s free (even if you click on one of the ads).

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