Cramer's favorite market indicator and how we incorporate it into trading decisions

Published Thu, Mar 31 20221:46 PM EDTUpdated Fri, Jun 9 202312:35 PM EDT

If you've been following our trades in the Charitable Trust over the years, you've likely heard us talk about the S & P 500 Short Range Oscillator as the first thing we look at during volatile markets. We reference the Oscillator, a paid product that Cramer has been using for decades, when explaining the decisions behind selling some shares of six names we executed Thursday morning, and a trade that we made Tuesday morning . Put simply: The S & P Oscillator is our most trusted indicator of how to act during big upswings or huge downdrafts in the market. At its core, the Oscillator helps understand when the market has either become overbought and potentially due for a pullback, or too oversold and positioned for a bounce. What the Oscillator does best is call turns in the market. You know we like to invest with the fundamentals in mind. We would not interview lots of CEOs, study conference calls, and analyze analyst reports every day if we invested purely based on technicals. But what do you do when the market has no memory from one day to the next? How about when the fundamentals are being tossed aside by a volatile market? These factors have certainly been at play since Russia invaded Ukraine in late February and global financial markets went haywire. Oil prices soared, bond yields rose and stocks had off-the-charts swings from day to day. Every time we mention the Oscillator, we're flooded with requests from Club members: "How can we access?" Well, we went directly to the source, our partners at MarketEdge, the data provider that publishes the Oscillator. We're excited to share that Club members can now get an exclusive discount for this helpful tool. Click here . To help figure out the market's pulse, we like to refer to this Oscillator as our guidepost for when it's time to buy or sell against the traditional thinking. We receive a daily update from the S & P: Anything above a plus 4% would indicate the market is overbought; anything below a minus 5% would indicate the market is oversold. Take April 13, 2021, as an example . The market was making new highs that day and in subsequent days, but the S & P Oscillator was flashing an overbought signal. Our interpretation of the indicator was that it was time to lighten up — and if you listened, you would have side-stepped a nasty drawdown that started on May 10, 2021. The indicator was a great warning sign. Jump to the present, the Oscillator is flashing another overbought signal — and we are listening. On the last day of March, with the S & P 500 poised for a strong month but a weak first quarter, we'll soon be turning the calendar page to April, a month that's historically rather strong. In fact, the market was up 15 out of the past 16 Aprils, and that's enough of a reason to not be so bearish. However, our discipline and the track record of the Oscillator dictated we raise some cash so we can take advantage of any possible downturns to add to the stocks we like. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Brendan McDermid | Reuters