OBOSS is a proprietary market timing system indicator that I created to signal when indices are over extended. OBOSS numerical readings alert investors that a change in trend is likely to commence.

* An extreme over bought signal warns investors to protect profits until the condition has neutralized. +2
* An extreme over sold condition indicates investors should be building new positions and adding to existing positions. -2
* A neutral condition indicates that the current trend should stay intact. -1 to +1

In extreme market conditions OBOSS gives investors an edge by keeping them in touch with the market extremes and keeps the average investor from being complacent about their portfolios. When OBOSS is used correctly it can protect profits in up trending markets and generate buying opportunities in down trending markets.

During a trend OBOSS stands as a reminder to stay with the current trend until an extreme signal has been given.

OBOSS is hovering in the lower end of neutral, leaning towards over sold.  We are seeing the market push up against resistance only to fall back, but it does appear that the sellers are getting tired and buyers are slowly taking the upper hand.

The month of May gave us our first extreme reading on OBOSS this year.  We are taking advantage of the discounted prices by scaling into high quality stocks.  Let's see if June will work off the extreme levels we saw in May.

We are buyers on any major dip in prices.  When adding exposure to equities,  scale in slowly due to extreme headline risks out of the EU.

OBOSS pushed close to over sold as the market pulled back today.  We were cautious as OBOSS entered the neutral zone for the potential of resistance. Combining the resistance with negative headlines was the perfect recipe for equity selling.

I received a question today on how to manage an OBOSS trade as it enters neutral when your trade has not returned to break even or a profit.

Allocating small, consistent, amounts of risk per entry, as OBOSS enters extreme over sold territory, allows the trader to get as good an average price as possible.  Providing a trader followed this formula and their stocks have a positive beta they should have been in the money or at least at break evening yesterday as OBOSS moved into neutral territory.  Knowing that the market is in a down trend we are protecting profits by setting stops close to break even. Considering the market fell back those stops were hit.  The buying power that was generated by the pull back will now be allocated into the trade at lower levels -  lowering the average cost of the trade for the next cycle higher.  The second cycle has a much higher probability of pushing into over bought territory where the real profits from this trade will be made.

In other words... take it slow, manage risk by protecting profits using stops when caution is advised.

The number one mistake using OBOSS is allocating too much risk all at one time on the first OBOSS extreme.  OBOSS cycles from over bought, neutral, and over sold.  It can stay in any one area for over a week.

We are buyers when we get into the extreme over sold levels and we are sellers as the market gets over bought.  In all cases we are scaling in and out.  OBOSS is a tool to help you time your entries into the market.  It is not an exact bottom or top - just an indication that bottoms and tops may be close at hand.

OBOSS is neutral.  Caution is advised as OBOSS doesn't give us a lot of clues while it is within the neutral zone.  Normally we review SPY's 50 day moving average to see if the market is trending up or down and trade accordingly.  Take trades with the trend while keeping in mind where OBOSS and the market have come from recently.  If the market is in the middle of a snap back rally, it may be time to let profits ride while keeping a tight stop on winning trades.  If on the other hand, the markets are pulling back from over bought levels in an up trend, it may be time to look for upwardly trending trades.  SPY's 50 day moving average is a good indicator of the overall trend, but it does lag during reversals off over sold and over bought levels.  When this happens, look at shorter time frames (5, 10, and 20 day moving averages) and look for higher highs and higher lows or lower highs and lower lows in price for an indication that the trend might be changing.  This will help you find the best trades in a neutral market.

OBOSS closed the week on a high note.  It appears the market is finding support.  There is a lot of headline risk to work through, but considering how over sold the markets got I expect a nice snap back rally this week.

Anything can happen...  If OBOSS falls back into extreme territory, we are buyers of high quality value stocks.

If the market rallies this week, we will be looking to protect the shares we acquired during the last few weeks.  Considering the market is still in a confirmed down trend, I would be looking to tighten stops on any new positions when OBOSS goes back to zero.  Normally on the first OBOSS cycle into extreme territory the markets will return to neutral (zero) and then fall back a little to test support from the previous move.  Every cycle is different, but the odds favor a test of support as opposed to the market moving right back into over bought territory.

OBOSS returned to neutral territory, but it is still close to over sold territory.  Caution is advised as OBOSS doesn't give us a lot of clues while it is within the neutral zone. 

Considering where the market has come from recently might give clues to future direction.  If OBOSS is hovering in the neutral zone after a snap back rally, the market may be building support or hitting resistance.

OBOSS indicates that the market is in over sold territory, but not extreme levels.  This is a good time to be on the look out for buying opportunities.  Watch for OBOSS to get extremely over sold.  Scaling into high quality stocks is an option, but caution is advised.  There is still plenty of room to the downside so risk management is priority #1

OBOSS is in over sold territory, but not extreme.  Watch for a sudden move lower that would push the market into extreme over sold territory.  There is still plenty of room to the downside so risk management is priority #1.

NOTE:  If you're scaling into the market, be very cautious as you want to have average prices as close to the bottom as possible.  Scaling into the market looking for a bounce is a very high risk trade.  The best way to succeed is leave enough buying power so you can get more aggressive as OBOSS gets extreme -2.5 or lower

The market rallied and OBOSS returned to more normal over sold levels today.  The market is still over sold, but the pressure is off for now.

We are still buyers on any extreme move lower while looking for a continuation of today's strength.  Hopefully you were able to buy some high quality stocks last week while the market was extremely over sold.

There is still plenty of room for the market to move lower.  Take it slow when scaling in during declines and look for high quality value stocks that have been overlooked due to the panic in the markets.  GeoInvesting.com provides lists of stocks to watch that we feel are good value plays.

OBOSS indicates the market is at historic over sold levels. Look for buying opportunities to take advantage of the up coming bounce.  If you're scaling in, get aggressive on any sharp move lower.  If you've been patiently waiting, this is a good time to start buying over sold stocks on your shopping list.

The S&P 500 is only down a little over 8%, but we are seeing selling pressure as heavy as in the financial crisis of 2008.  If the world isn't ending, this week's pull back should prove be a great buying opportunity.

It's just too early to tell.  The average OBOSS cycle from when it bottoms is about two weeks (sometimes longer).  OBOSS fails 20% of the time. In October it was very difficult to trade the extreme over sold signal because we just came off the July OBOSS failure.  In the end the October signal was the best call of the year and that call alone made the failure in July a non issue.  

Even with an OBOSS failure there is a very good chance your purchases will be trading at a profit the next time OBOSS cycles up to over bought.  The trick is not to be aggressive to early into the cycle.  Right now we're at extreme over sold levels not seen since the financial crisis.  If you're averaging into stocks at this point in the game, there is a very good chance you will be in the money within the next week or two.  The trick is to protect profits when OBOSS is > 2 and buy stocks when OBOSS < 2.  

OBOSS is a tool (indicator) to help you allocate funds into equities when prices are discounted and a tool to help you protect profits near short term market tops.

Look at the last few OBOSS alerts when it was signaling caution in the markets.  Those days were the days to protect profits and raise cash for todays market climate.  

Last thought... scale in slow - look at previous support levels in the stocks your buying and make sure you have buying power to add on each level keeping your average cost as low as possible.   When the rally comes you'll be in a good position to participate.

Renn, I  am not sure i see a meaningful rally in this market until some type of positive news flow comes out of Europe. The longer OBOSS does not call a bounce, the greater the chance that it can gravitate away from oversold even as the market falls. I believe this is what happened last year.

OBOSS indicates the market is historic over sold levels. Look for buying opportunities to take advantage of the up coming bounce.  If you've been patiently waiting, this is a good time to start buying over sold stocks on your shopping list.

On a side note... do not use margin for scaling into stocks for an OBOSS trade. 

Nobody wants to be forced out of the trade right before the snap back rally kicks into full steam because of a magin call.  The OBOSS trade that failed last year still made money for my account because I was able to ride the storm out and TNA (the ETF I was trading) came back above my average cost.  Had I been on margin, I would have been stopped out of the trade for a loss.

There are no guarantees any indicator will work, but with OBOSS's 80% track record I'm willing to scale into stocks during any signal.

OBOSS uses price action, volume, and volatility to calculate a value so headline risk is not taken into account. 

Having the S&P 500 under a declining 50 day moving average does increase the risk that OBOSS will fail this time around.  We normally only want to buy stocks with an increasing 50 day moving average on the S&P 500.  Considering this added risk along with negative headlines, I would use smaller share sizes and scale in slowly.  I wouldn't use options on stocks for an OBOSS trade because the average cycle is 2 weeks with extended cycles taking over a month.  Normally options lose value too quickly to be any advantage over owning the stock for an OBOSS trade.

You sure OBOSS is going to work with all the headline risk we have now? I remember that OBOSS failed last year for the same reasons.

OBOSS is holding in extreme over sold territory.

We are looking for buying opportunities during heavy selling.  Keep an eye out for a major sell off which could indicate capitulation on the part of the sellers.

OBOSS levels lower then -2.5 is a very good indication of an impending bounce / snap back rally.   If you're waiting on the side lines, this is a good time to use your shopping list and consider purchases.  If you're scaling in, consider getting aggressive.  NOTE: Scaling into the market is considered a high risk trade.

OBOSS is dipping further into extreme over sold levels.  OBOSS levels lower then -2.5 is a very good indication of an impending bounce / snap back rally.   If you're waiting on the side lines, this is a good time to use your shopping list and consider purchases.  If you're scaling in, consider getting aggressive.  NOTE: Scaling into the market is considered a high risk trade.

OBOSS moved into extreme "over sold" territory.

We are looking for buying opportunities in high quality stocks as their prices get discounted.  If you've been on the side lines waiting for an opportunity to enter the market, this is a good area to consider getting some exposure to equities as they fall.

There is still room to the downside so scale in slowly.  Whenever OBOSS gets this extreme we expect a snap back rally in the near future.

OBOSS is in extreme over sold territory at the open today.  Keep an eye out for buying opportunities in high quality stocks.

It's too early to tell if OBOSS will close in extreme over sold territory, but continued weakness could give us a confirmed buy signal tonight.

OBOSS is close to entering extreme over sold levels. We saw a lot of back and forth price action this week.  The market appears to be building support at current levels, but normally when OBOSS gets this over sold we do see a close in extreme territory before a major rally.  We are viewing any major decline from current levels as a buying opportunity.

There is still plenty of room for the market to move lower.  OBOSS doesn't normally get readings lower then -2.5, but in the recent decline in August 2011 it did hit  -3.5 for one day before a snap back rally started.  Keep that in mind as you scale into high quality stocks on any move lower.

OBOSS recovered slightly from yesterday, but we should still be alert for buying opportunities as the market continues to be over sold.

OBOSS is over sold.  There is still plenty of room for the market to move lower.  OBOSS doesn't normally get readings lower then -2.5, but in the recent decline in August 2011 it did hit  -3.5 for one day before a snap back rally started.  If you're scaling in, this is a high risk trade and you must leave yourself lots of buying power as the market moves lower.

When we see OBOSS moving into extreme territory "intra-day", it's usually a good time to be alert that buying opportunities are available in the market.  The alert could be used for a quick scalp during the day or as a starting point to building larger positions.

Normally we want to use the closing OBOSS value for each day as the most important value.  The closing value last night was only -1.55 so that gives the market a lot of room to the downside before getting extremely over sold.  In almost all cases OBOSS has given an "intra-day" alert before getting extreme on a closing basis.  Going back two years the average time between an "intra-day" alert and a closing extreme is about a week so I use the "intra-day" alert as a sign post that the market is getting interesting.  I also like to slowly scale into high quality stocks at this level because there is a good chance the market will move to extreme territory within the next week.  Moves off extremely over sold conditions can happen very fast so having some exposure to stocks prior to OBOSS's lowest value guarantees participating in the move. 

The risk is adding too much exposure too quickly.  Patience and risk management is the name of the game at this point.

OBOSS indicates that the market is entering over sold territory.  During the trading day OBOSS dipped into over sold territory and recovered to it's current level of -1.55.  We sent out a mid day alert letting everyone know there was a potential buying opportunity for high quality stocks.  Considering the market consolidation may continue, keep on the look out for additional buying opportunities where you can slowly scale into positions whenever the market sells off.

In other words, "buy the dips".

Watch for OBOSS to get over sold on a closing basis (anything less then -2.0).  There is still plenty of room to the downside so risk management is priority #1

Wow the OBOSS call worked like a charm today. Good call.