Now that Standard & Poor's proprietary oscillator is at minus seven, the market looks like it's poised for a pullback, Jim Cramer said on TheStreet.com TV's Wall St. Confidential Web video Friday. And that means it could be a good time to buy, he said.
S&P's oscillator, he said, is used to measure how overbought and oversold a market is.
Historically, over a 20-year period, Cramer said the oscillator has never let him down. It has certain periods when its readings are really high. That is when market players should sell, he explained. Then there are certain periods when the oscillator is really low, very negative, and that's when people have to buy.
Cramer: Prepare For a Pullback
var config = new Array(); config<BRACKET>"videoId"</BRACKET> = 1322221357; config<BRACKET>"playerTag"</BRACKET> = "TSCM Embedded Video Player"; config<BRACKET>"autoStart"</BRACKET> = false; config<BRACKET>"preloadBackColor"</BRACKET> = "#FFFFFF"; config<BRACKET>"useOverlayMenu"</BRACKET> = "false"; config<BRACKET>"width"</BRACKET> = 265; config<BRACKET>"height"</BRACKET> = 255; config<BRACKET>"playerId"</BRACKET> = 1243645856; createExperience(config, 8);
"Both times, in August and seven days ago, the oscillator was off the charts at negative seven," Cramer said. "At minus seven you have to cover your shorts and get long because there will be some reason for a rally."
There's only one time when this oscillator hasn't worked, he said, and that was in 1987. All the other times it has been accurate.
"When the oscillator is over five, people must sell, regardless of how great it looks," Cramer recommended. "There have been some
times where the animal spirits of the market have been so great that it's gone to plus nine and 10, but the percentages on the upside are that there's going to be a selloff. It may not be major, but I do believe it will happen."
When it's over five, if he were fully invested, Cramer said he would cut to being 75% invested. At this time, short-term traders should maybe go 50% invested, and "if you're a guy who is able to short, maybe 25% short," he said. "That's how much I have faith in this indicator. I have faith in almost no indicators other than this one.
a contributor to
does her own oscillator work," Cramer said. "She seems to agree with me on the site. When we both agree, we tend to have a pretty powerful correlation between right and wrong."
Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for
Action Alerts PLUS. Watch Cramer on "Mad Money" weeknights on CNBC. Click
here to order Cramer's latest book, "Mad Money: Watch TV, Get Rich," click
here to order his book, "Real Money: Sane Investing in an Insane World," click
here to get his second book, "You Got Screwed!" and click
here to order Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column by
TheStreet.com has a revenue-sharing relationship with Traders' Library under which it receives a portion of the revenue from Traders' Library purchases by customers directed there from TheStreet.com.