For the upcoming summer, I’ve decided to begin a three part technical tools and formulas coverage series. For part one, I’ll be discussing the S&P Short-Range Oscillator. Often touted by CNBC host Jim Cramer, the S&P Short-Range Oscillator is “a market measure tool that generally aims to determine whether the U.S. domestic equity market has been overvalued or overbought.”
In order to read the provided data, first understand that a value of 50% for the S&P Short-Range Oscillator is what’s considered “part” or “neutral.” On the product’s website, the description lists that “When the Oscillator reaches a value of “+4%” (meaning 4% above par, or 54%), the market is technically said to be in an “overbought” position. Markets in this standing may be considered as being poised for a downward correction. By contrast, Oscillator values falling to levels below 50% may be indicative of a trend in the opposite direction. An Oscillator value reaching “-4%” (meaning 4% below par, or 46%) is a technical indication of an “oversold” market, which may set the stage for a rally.”
Rather than fret over -4% or +4% changes, since I typically hold a mix of long/short equities, I like to use the S&P Short-Range Oscillator as a measurement or indication of extreme market conditions. Typically the consensus is that +5% start to look to sell, +10% sell, while -5% start to look to buy and -10% buy. All and all, the S&P Short-Range Oscillator is not a tool I fret daily over, it’s more useful to day-traders, but I do find it useful to evaluate potential buying opportunities for my portfolio (i.e early January of 2019). Lastly, I’ll note that the S&P Short-Range Oscillator is an individual tool and like a hammer, you need nails, wood and a bunch of other equipment to get the job done. Don’t solely rely on it for all of your market decisions, but don’t be afraid to let it aid you along the way.
Below is the link to the S&P Short-Range Oscillator product’s website and subscriptions cost $500 per year: https://www.sposcillator.com/