August 22nd, 2009

Oh, No! That S&P Oscillator Again From Cramer

This blog gets many “over-the-transom” visitors each time Cramer mentions the S&P Oscillator as his market timing tool because I posted comments several times last year when he claimed that the bear market had ended based on that indicator ….. and you know how steeply the market continued to fall until March of this year. So if you’re reading this because you landed here through doing a search on the term “S&P Oscillator” then “Welcome”.

As I wrote in “Strike Four Your Out” last August:

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 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 near 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.”

The other times last year I wrote about Cramer’s mention of this proprietary oscillator were:

  • February 15
  • March 6
  • May 24
  • June 12
  • June 13

Cramer admits he’s not a market timer but I have to tell you that I couldn’t disagree more with what he was trying to sell you tonight. The contr-Cramer trade is going to be a winner again. According to the recap on theStreet.com, Cramer said tonight:

“rallies are times for action.”….too many investors don’t trade during rallies and thus watch their gains disappear….He said investors shouldn’t let their emotions prevent them from doing what is needed during big rallies…..investors often let emotions sway them to hold on to their stocks — the exact opposite of what they should be doing. “The goal is to buy low and sell high,” he reminded viewers, “so when the market’s up big, it’s time to lock in some profits.” ….gains in the market are not really gains until the stocks are sold….the way to play big market rallies is to sell in increments during the rally. “Get the great prices while they last,”

How can he be so irresponsible? So many have been sitting on the sidelines, too frightened to put any money to work in this market. And now, when the market looks as if the market has finally succeeded in crossing the last major hurdle (the 1010 resistance trendline) before a sustained upleg, he’s out there telling uninformed, reticent, severely damaged and vulnerable individual investors to cash in a portion of their recent small gains and put it into cash – waiting for some pullback that he sees or hopes will come at prices lower than today’s close. You have gotta be kidding.

The market went essentially sideways following its 35% move up from March 9 to May 8 (beginning with that false head-and-shoulders pattern followed by the admittedly weak “Traders’ Remorse test of the successful inverted head-and-shoulder neckline). It’s now moving into a “vacuum” above that inverted head-and-shoulder base reversal pattern, the mirror image of the descent from the bottom of last years consolidation pattern of 1230 exactly a year ago (September 2, 2008) to 996 on October 7.

Have we driven those excruciatingly painful memories out of our minds. Everyone was throwing stock, any stock, overboard. There was no demand, only supply. Comparisons were being made against the Great Depression and the 1987 Crash. People were looking for places to hide their cash because banks and financial institutions were going bankrupt. And the market is ready to begin attempting to scale that void back to normalcy. And all voids need to be filled.

That’s why this writer believes that if there were any time to be in the market it’s now. I can envision looking back from next January and seeing a sharp upward move during which much of the money that abandoned the ship a year ago now is trying desperately to clamber back on before the ship leaves the dock. And the one thing “they” don’t want is you competing and bidding for stock against them….actually, they want you to sell them your stock at what we may look back on as ridiculously prices – just as we now look back on the lows of this past March as once in a lifetime sale prices.

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  • Anonymous

    Are u predicting the market is going to cruise for another 100 points from 1020 to 1100-1150 range before it pulls back?

    Are u suggesting a chance to make a quick entry/exit?

  • Guru

    No one can predict the future with certainty and this is only my opinion. I thing there's a greater probability of this happening than the likelihood of seeing the market decline first to 900-850.

    That being said, I'm going to take the gamble and investing most of the remaining cash I now have sitting on the sidelines (about 35%) hoping to bring the cash component back up as signs of a correction begin to develop, whenever and whatever level it might be.

  • Fresco

    Guru,

    I noticed that you speculated that $FAS was poised to move much higher before the year's end. Do you have more insights on this? Thanks for your guidance!

    Fresco

  • Anonymous

    I appreciate your blog, and although not a Cramer fun per say, if one has made 25-30%+ during the last 3 monthsm it would be wise to lock in some gains at the moment. I'd rather take real profits and miss some gains on paper (from getting out to soon), than miss taking profits altogether. Another indicator I follow is watching for capitulation on the bears during a bull run and vice-versa. Bears are now throwing the towel and capitulating. In my humble opinion the time to start selling is now just like it was time to start buying when the bulls where capitulating end of February this year…

  • Guru

    On March 20, in "Financial Stocks are the Laggards" I wrote: "…financial stocks is the Industry Group that leads out of the average Bear Market. In this case, however, the financials not only lead us into the Bear Market but they were the principal cause….the financials seem to be lagging by 4-6 months behind other industry groups. Their significant share of the US economy and the major market indexes could explain why individual stocks have started to move up several months before there's any evidence of the Indexes having turned."

    Those 4-6 months have passed and both the market and all financial stocks (big banks, international banks, insurance companies of all strips, REITs and asset mgrs.) seem to be breaking above necklines, MAs and resistance.

    I own quite a number, am going to buy some more and, on a speculative day-trading basis (not as a long-term hold), have started playing FAS with a small position just to boost the excitement level a little.

  • Guru

    On March 20, in "Financial Stocks are the Laggards" I wrote: "…financial stocks is the Industry Group that leads out of the average Bear Market. In this case, however, the financials not only lead us into the Bear Market but they were the principal cause….the financials seem to be lagging by 4-6 months behind other industry groups. Their significant share of the US economy and the major market indexes could explain why individual stocks have started to move up several months before there's any evidence of the Indexes having turned."

    Those 4-6 months have passed and both the market and all financial stocks (big banks, international banks, insurance companies of all strips, REITs and asset mgrs.) seem to be breaking above necklines, MAs and resistance.

    I own quite a number, am going to buy some more and, on a speculative day-trading basis (not as a long-term hold), have started playing FAS with a small position just to boost the excitement level a little.

  • Manoj

    Hi Guru,
    Could you post the link where you wrote about REITs.

    I liked your stuff about insuerers
    and bought LNC after that.

    So far I am enjoying your posts

    Thanks
    Manoj

  • Anonymous

    Thanks Guru for the chart of FAS, though there seems to be a upward trend the volume for July/August seems to be much lower then the Mar-May time frame. What is ur take on this?

    Regards

  • Guru

    Manoj, I'm not sure I posted a list of REIT stocks. But I did write on August 2 in "Where Were You At Obama's Election?", "I'll go with the laggards since Obama's Election: Banking, Real Estate, Transportation, Energy, Chemicals and Consumer Durables. That's close to 1000 stocks of which many have formed beautiful reversal bottom patterns they're about to break above."

    As promised, the next day I included a link to a spreadsheet with many of those stocks to pick from (in http://tinyurl.com/Bull-Stocks-II).

  • Minnesotalee

    I've been your follower since February. I sure wish you could have gotten in the action sooner. Your MAvg technique however is an excellent approach to TAnalysis. I used the P&F charts for forty years first developed by Cohen. There has been some modern versions of this technique. I love having the MAvg and this as supporting arguments to make timely decisions when to buy/sell. The P&F approach gets you in early but it works well using statistics and common patterns. The MAvg allows me to stay in the market longer. Like you say Guru, there are no U-turns after a strong golden crossing whether it's up or down. For now it's all about the up baby!!! By the way my P&F chart for the $SPX (S&P 500) is 1295 w/ a strong triple top formation on this past Friday. This pattern developed after the run up this Spring while the market was consolidating. Me tooooo, I've found Cramer's recommendations to be inversely correlated. I can see them in my P&F charts. In all fairness (I'm not a CNBC supporter) his show on Friday was a repeat from an earlier time. When he's on vacation, he runs these supposedly tutorial sessions that are boring and irrelevant. You'll know when they are on because the scoreboard shows always the incorrect and some date (07 43!!!) I think. Anyway keep up the excellent work. I give you Guru a 100% approval rating somewhat better than the polls show for the "public plan".

  • Minnesotalee

    Forgot: FAS by my charts show a revised buy to $105. This could change and go higher if another pattern develops on its rise. I hope you are right with the higher price objective (PO). I just bought some C at $4.15 this past week. The PO for C is $8.5 on the first move up. This pattern too is the same as the $SPX and the statistical probability is 87.5% successful for both!!!

  • Anonymous

    Hopping on a moving train not going to be easy… we need a pull back here!!

  • Hapi

    hello… hapi blogging… have a nice day! just visiting here….

  • Jesse Caris

    http://money.cnn.com/news/newsfeeds/articles/reuters/MTFH71518_2009-08-23_20-51-18_N2372264.htm

    "A prominent banking analyst said Sunday that 150 to 200 more U.S. banks will fail in the current banking crisis, and the industry's payments to keep the Federal Deposit Insurance Corp afloat could eat up 25 percent of pretax income in 2010."

    you are convincing people to buy in after a 51% rally instead of taking profits. I would have to agree with Jim Cramer on this one. It's good discipline. Tell me when do you think you'll get another chance at 51% profit in 4 months? It would be wise to take profits especially in such a bad economy. Sounds similar to convincing people that Oil was going to keep going up last summer.

  • Jesse Caris

    Fundamentals are a mess in the U.S. economy, regardless of all the nonsense we hear from the mainstream financial press. Truth is, we have close to a 10 percent admitted unemployment at this time, with the actual rate much higher if you include discouraged workers no longer seeking employment. Unemployment will get worse. A lot of people are collecting severances or unemployment checks, which have expiration dates. This means consumer spending, which accounts for 70% of GDP, is not going to rise much any time soon. Corporate earnings reports that we hear “beat expectations” are beating pathetic expectations, not robust expectations. A lot of the earnings improvements are due to labor cost savings from downsizing, not growth.

  • Anonymous

    xme is underperfom xlf ..Do you have any interpretation? deflation??

  • Guru

    The relative move between XLF and XME depends on your time horizon. Since July 4, the XLF and XME have moved about the same (27% and 24%).

  • Minnesotalee

    All I have been reading here and on the CNBC is this "wall-of-worry".

    Someone will be right and others will be wrong. Whatever technical tools you have are better to be relied on than listening to the bears on this recovery. You can't keep looking at the higher earnings are false due to cutting costs; this is a first good sign, a beginning, for the economy and corp[orate profits. The second derivative on a lot of these variables is required before you can make the U-TURN. This time however the direction is up. I do love this wall-of-worry. It just shows how the momentum can continually rise as a result of the continued bearish spin. These individuals will need to buy, and will provide for the market to reach it's price objectives mentioned above. There is a lot of reinvestment coming back from those that are still a lot in a cash position. My P&F charts and the Guru's are not be unnoticed. You bears will need to BUY on any pullbacks.

  • Jesse Caris

    I'll buy long once we hit the bottom, which is a long ways a way from here.
    Where's all this cash at that people are waiting to get in the market?
    Feel free to buy here near the top. I'll go back to my lonely bear cave…you guys amuse me shrugging off horrible economic data. Even the President comes out yesterday and says "whops, looks like we were a trillion off on our estimates for the deficit and we're gonna cut the social security annual raises." Again consumer spending = 70% of GDP. The country will not turn around without job recovery and the return of consumer spending.

  • Minnesotalee

    Don't want to get into any wars here, but remember the stock market predicts the turn in the economy by 6 mos. Also the stat on 70% still holds; the consumer buying is at these levels despite what CNBC and others are telling us. Just how many times have the economists, pundits, etal have been correct. They were wrong on the direction in the Fall of '08 while the market dropped 30-40% (CNBC's prevailing message was no recession and in fact it got much worse) and they are dead wrong in this market rally (no bear market rally). Investors need more than headline news to decide when to invest. If you follow any TAnalysis here (ie, the Gurus or others), then you may make money on equities rather than in cash like minis, tbonds, or cash. Look back 6 mos from now and we'll see if the pundits and bears were correct or the Guru. Confirmation will come sooner than that… Labor Day. The indicies will breach the upper MA resistance line. Also from a fundamental approach look for much easier qtr-to-qtr earnings performances from the corps rather than the pundits looking at yr-to-yr. Soon even that will look lot better. If you hibernate, you lose. I recommend you get into the game- a little bit of Cramerism; wow I didn't think I said that. Regardless of any bearish attitude; it actually is beneficial to us bulls.

  • Minnesotalee

    Oh I think if I do the math 100-9.4% = 90.6% of the workforce is employed. Look at the brighter side; I agree there's still some bearish statistics, but you don't come out of a recession on a dime. Remember most of the money made in in equities will come from the early risk takers. As a poll what do the readers he use for TAnalysis, if any?

  • rbblum

    Material as presented has always been worth digesting.

    Given the times, perhaps it would be a benefit to broaden ones visibility to 'the people' by occasionally presenting either a respectful contrary viewpoint or primary article on Seeking Alpha
    . . . that effort should be most informative how and whether 'the people' are receptive to the knowledge and information shared.

    Today's times are most trying and confusing . . . for, the American ideological and factual news landscape is in turmoil. But most are unable to articulate such an environment of the turmoil . . . So, too, gives evidence as to why so much noise and disilluisionment thrives today on the business and financial market programs on tv and radio.

    Actually, there is very little to lose and so much to gain by venturing out where there would be more public exposure. . . And so too, will more of 'the people' gain and express appreciation.

    Engage.

  • Guru

    rbblum, thanks for the comment. If I only knew what you were talking about. You sound so certain of yourself it's I shame I really don't understand.

    But if you're saying I shouldn't have spoken about Cramer or that I should write about more people then, I regret, I can't because this blog is about technical analysis and, specifically, the universal language of price charts.

  • rbblum

    Take the initiative to post
    material on Seeking Alpha (perhaps on monthly basis) to draw support and additional traffic to your primary website here at stock-chartist.com

    Offer the ability for individuals to automatically receive your update blogs as well as the ability to send out invitations to other potential subscribers.

    Also, it does help to occasionally draw specific comparisons of your position vs others (specifically Cramer) because the current television media gives too much attention to flash in the pan and entertainment without sufficient substance.

    Could say…you are a hidden gem.

  • Guru

    rbblum, thank you for clarifying. I've thought of submitting to SeekingAlpha but my style of writing – mostly TA and lots of charts – doesn't conform to the SeekingAlpha guidelines. They specifically ask that submissions be "fundamental" and not technical, "logical and in-depth reasoning" and not "momentum" and chart patterns.

    I think the quality of material there has been watered down since they incorporated "instabloggers" straight to Twitter. Those sort of postings aren't "well thought out" nor "reasoned".

    But I will inquire if they wouldn't open a "technical" channel.

  • rbblum

    I hear you and understand . . . though there should be a rennaisance of sorts . . . similar to current affairs in the world of American politics; that is, independents are not necessarily buying into the tired old Rep or Dem party because they are not truly focussing on what is 'best interest' to 'the people' for the sake of the country.

    As I stated, I hear you and understand . . . and it is almost criminal that there would be a slant towards fundamentals (which oftentimes can be considered snake oil sales) and ignore the technicals (the facts, figures and substantive data).

    I am at a loss . . . but perhaps there will eventually be another popular and successful channel that will nurture the sanity of pertinent data presenting a balanced approach.

    Kinda reminds me of Chris Anderson's Long Tail theory that partially explains the outcome experienced with Toffler's Third Wave concept. . . specifically with the news source industry.

    Thanks for your response and insight.

  • Guru

    In case there are those unfamiliar with terms used by rbblum in the above comment, here are some links (yes, I had to search them out because I wasn't sure what rbblum was referring to but now understand exactly what he meant:

    Chris Anderson's Long Tail theory

    Toffler's Third Wave concept

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