If you’ve been following us through the years, then what you may already know is that the first thing we look at during big downdrafts in the market is the S&P 500 short range oscillator.

If you haven’t heard us talk about the S&P oscillator before, what you should know is that it is a proprietary technical analysis indicator from an outside service we have been subscribed to for years because it serves as a guide to the market. It is our most trusted indicator for when the market has either become overbought and due for a pullback, or too oversold and positioned for a bounce. What it does best is call turns in the market.

Look, you know we like to invest with the fundamentals in mind. We would not interview a score of CEOs 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? When the fundamentals are being tossed aside by a volatile market? To help figure out the market’s pulse, we like to refer to this oscillator as our guidepost for when it is time to buy or sell against the traditional thinking.

Take April 30th as an example. The market was making new high after new high, but the S&P oscillator was flashing an overbought signal, as you can read in the article here. 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 in the second week of May. The indicator was a great warning sign.

This time around, after an ugly day for stocks with the S&P 500 falling 1.3% and tech getting the worst of it, what we are looking for is an oversold reading. Whenever the oscillator reaches oversold territory, our interpretation of the data is it is time to buy stocks — no matter how painful it may feel — because sentiment has gotten too negative.

We were tempted by some of the low prices the market had to offer today. How can you not be when the stock prices of high-quality companies go on sale? You wouldn’t run away from a sale at your favorite retail store, would you? That is what’s going on right now in the tech heavy Nasdaq, which is down 7.5% from its highs. This big of a pullback has us getting opportunistic and is usually the level where we find things we like for the long-term.

Despite the temptation, we stayed clear of buying for the charitable trust today because the market is still not near oversold territory, per the oscillator.

But we are getting closer and we are looking to buy, not sell, at this point.