Over at RealMoney.com, Jim Cramer occasionally talks about the “oscillator” during times of market stress. Well, I will offer you my guess at what the oscillator is: a 10-day moving average of NYSE & Nasdaq up volume, less NYSE & Nasdaq down volume. When that figure gets too high, the market is short term overbought, and when that figure gets too low, the market is short term oversold. We are close to that oversold level now.
That doesn’t mean that the market is a long-term buy, but that sellers are getting short-term tired. As the market has fallen, my own cash position has shrunk from 17% of assets to 11% of assets. I have added gradually to out-of-favor positions, and will add more if the market declines further.
Miscellaneous note: some readers asked what relative strength figure I use. Typically, I use 14-day RSI. Why? It’s the default on Bloomberg.