August 6th, 2008

Four Strikes Your Out – the S&P Oscillator

I’m now convinced that Jim Cramer (or must be getting a kickback from S&P for providing a lead to their “proprietary” S&P Oscillator through his continual mention. By my count, this past Monday will be the fourth time since February he’s mentioned it on the air or in an online article.

Monday’s show (click here for a recap) was devoted to “25 rules that he says will help investors play the markets defensively to avoid big losses and keep their money safe.” Again, his timing was perfect. The show, though welcomed and probably 6 months too late, came the evening before a 2.8% up day on Tuesday. We always kid around – but perhaps its true – that Cramer is a nearly perfect contra-indicator. Whatever he says, do the opposite.

Among the 25 rules for avoiding big losses was rule number 12:

After a big run, get defensive. Check the S&P Proprietary Oscillator, a paid product, to determine if a stock is overbought or oversold. Plus or minus 5 is the key number to look for.”

In the past, he’s Oscillator comment was in the context of it indicating a buying window (-5). On Monday it was in the context of using it as a selling signal. I don’t know about you but that means nothing to me (don’t write me, I know it’s the difference between a +5 and a -5 but I’m focusing more on the context of his deciding to talk about it and the fact that a couple of months after stating that it signaled a “buy” the market was unchanged). If it works, at all, it’s a very short-run trading tool. For anything beyond a few weeks, it’s meaningless.

I’ve written here before about the “accuracy” of this proprietary oscillator:

  • February 15
  • March 6
  • May 24
  • June 12 (reader’s comment)
  • June 13

I think I’ll stick with my Market Timing Indicator. By the way, it’s been accurately in a bearish position since December 28.

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