Stocks for the Rest of Us
Posts tagged S&P oscillator
S&P Oscillator Update: It’s Time To Lighten Up Into The Rally
Jan 8th
The S&P oscillator is back up to around 80 which historically has always proven to be a short term top. We’ve had a huge move off of the lows and I think it might be time to put on some hedges or take some profits. No one ever loses money taking profits. Originally, I thought that this particular oscillator was only relevant in bull markets. However, looking back at historical data it looks like the oscillator holds up even during a bear market and/or bear-to-bull transition.
S&P 500 Oscillator Shows Market Healthier Than In Past Sell Offs
Dec 6th
Here is another way the S&P 500 oscillator can be used which might be helpful. When a market rallies, people often refer to the breadth of the rally to determine how “real” that particular rally might be. A good rally with good breadth is one in which the majority of stocks are rising. A suspect rally with bad breadth might be one in which only the leaders rally, bringing up the major averages but the majority of stocks were actually flat or down.
The particular oscillator that I use looks at the percentage of stocks above there 50 day moving average. What’s most interesting to me is the divergence between the S&P 500 price action and the S&P 500 oscillator during the mid-November sell off. We’ve got stocks starting to climb up above their 50 day moving averages. This divergence says that the market was actually healthier internally during the mid-November sell off then it was during the previous October sell offs. It also says to me that the mid-November sell off was most likely caused by a panic in a relatively narrow scope of the market, not a broad panic like we had in October. While this is relatively bullish and the prospect of a year end rally is enticing, I’m still cautious going forward. Check it out.
S&P 500 Oscillator
S&P 500
S&P Oscillator: Why It Doesn’t Always Work
Nov 28th
The S&P oscillators are great tools, the one in particular that I use is available at stockcharts.com ($spxa50r). However, I’m starting to find that these tools don’t work in extremely emotional environments like the one in which we are currently in. This particular oscillator simply looks at the percentage of stocks above their 50 day moving average in an attempt to gauge an overbought or oversold condition within the S&P 500. Under normal circumstances this works great. When we get to around 80 we’re overbought and one should exercise caution going forward. During a sell-off or correction, the oscillator will dip down to around 20 indicating an extreme oversold condition.
In bear markets when the moving averages start to turn down naturally most stocks are going to be under their 50 day moving averages so you need to adjust your point of reference on the scale. Furthermore, emotions tend to be extreme in bear markets so while a reading of 20 used to indicate an oversold condition chances are that the markets ability to become MORE oversold will be greater.
S&P Oscillator Update: Overbought Condition Has Been Relieved
Sep 7th
Doing a quick check here on my favorite S&P Oscillator (favorite because it’s free) it looks like the slightly overbought condition we were experiencing has been relieved. As you can see the oscillator has pulled back which, although it feels terrible, is actually a good thing. With the Fannie/Freddie news that came out today we can probably expect to see a fairly decent sized rally in some of the financials that could go on for several days rallying the S&P 500. I’ll be keeping an eye on this indicator, when it start getting back up towards 80, that’s when you want to start selling into rallies. For now, I THINK we’re going to enjoy a bit of a rally for the next few days.
S&P Oscillator
S&P 500 not yet overbought
Aug 8th
One of the indicators I follow is the percent of stocks in the S&P 500 above their 50-day moving average. This indicator gives you a visual representation of an overbought or oversold condition in the broad market. The best part about the whole thing is that it’s available free from stockcharts.com. Typically, bottoms are marked by spikes down below 20 and tops are marked by moves above 80. We’re currently sitting at about 40 on the weekly chart which does confirm my thesis that this rally can continue. While I continue to hold my longs it is important not to get too attached to this rally thesis and be ready to cut and run at the first sign of weakness. This type of market doesn’t allow much room for error so in my opinion you’re better safe then sorry.
S&P 500 overbought/oversold indicator