What’s so Ultimate about your Oscillator?

by Chris Wilson, www.CycleSpreads.com & www.CycleETF.com. June 5, 2009

One of the longer term indicators we use with our newsletter family is the ultimate oscillator (UO), developed by Larry Williams. The brilliance of his creation vs. other oscillators is that the UO reduces the time quotient prior to an actionable signal, where others are often premature. Like any other indicator, UO on its own is often not a viable trading vehicle. However, if given a long enough time horizon, it can produce excellent early warning signals about the fate of the markets.

Back in June of 2007, the UO produced an incredibly high signal of 80 on a weekly chart for the S&P 500. Any move for the oscillator above 70, followed by a decline beneath it, while the index is still moving up is considered a bearish divergence. A couple of months later, the bear market crash commenced. Now, in June again, we see the same scenario playing out, again with the oscillator turning down while the market rallies.

Ultimate Oscillator

Maybe there is something to this sell in May stuff after all (: One should be cautious about taking out new long positions here as this setup looks rather ominous. As I write this, the S&P 500 hovers near its 200-day moving average around 950. Again, we think little of relying on a single indicator, but we haven’t seen it hit its moving average for some time now. We wouldn’t be surprised to see the index make a ‘throw over’ prior to a more serious sell-off. Best of luck in your trading.

Contact Information

Chris Wilson 847-370-1311 | Email | CycleSpreads.com | CycleETF.com