Cramer's favorite market indicator is signaling that stocks are 'way overbought'

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After Wall Street suffered from whiplash last month on trade headlines and recession angst, CNBC’s Jim Cramer says we may finally be in a “decent moment” for stock investing.

“This is one of the lightest periods for earnings,” the “Mad Money” host said Thursday. “We don’t have much macro news, either. Sure, we had a slightly hotter-than-expected consumer price index figure but nothing that would scare [Fed Chairman] Jay Powell away from cutting interest rates at the next Fed meeting.”

“We had some movement on the trade talks, but you know where I stand on this issue — I doubt there will be anything meaningful here one way or the other,” he added.

But Cramer warned he is concerned about one market indicator, a product called the S&P Short Range Oscillator, which the “Mad Money” host said he has been following every day for the past 30 years.

“The S&P’s proprietary short-range oscillator … currently stands at eight, and that’s not just overbought, it’s way overbought,” he said.

Cramer says the oscillator is the single best indicator of whether the market’s overbought or oversold, meaning it tells investors they’ve gone too far too fast in one direction.

He said the last time the oscillator indicated the market was that overbought was when Powell indicated earlier in the year that the central bank would stall interest rate increases.

“Historically, I haven’t made much money buying stocks when the oscillator’s at eight, in the same way I haven’t made much money selling stocks when it’s at minus eight — a classic sign that we’re extremely oversold,” Cramer said. “At these levels, the buyers usually run out of ammo, just as the sellers get exhausted when we go down too far, too fast.”

He spoke after U.S. stocks closed higher Thursday, a day after the Dow Jones Industrial Average also closed above 27,000 for the first time since July 30.

Cramer said if any investors are in position to contribute to their IRA or 401(k), it might make sense to wait it out.

“The oscillator is rarely wrong, and it’s telling me you’re likely to get a better entry point,” he said. “When in doubt, remember: Discipline always trumps conviction, and right now my discipline says don’t buy.”

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