Our favorite indicator says the market is overbought so we are trimming a stock
We are selling 150 shares of Emerson Electric (EMR) at roughly $86.57. Following the trade, Jim Cramer's Charitable Trust will own 600 shares of EMR, decreasing its weighting in the portfolio to 1.84% from 2.30%. We are making a small sale Monday and staying true to the S & P Oscillator, a technical indicator we monitor for oversold and overbought conditions in the market. Historically, an oversold reading suggests the market has gone down too far too fast with a wave of negativity, creating a good entry point to put some money to work. Conversely, an overbought reading suggests the market rally has gotten a little extended in the immediate term, and some time is needed to digest those gains. Thanks to the roughly 7% rally in the S & P 500 since the end of October, the S & P Oscillator has flipped from oversold to overbought. Since we followed the Oscillator when it was oversold a few weeks ago by steadily putting money to work through several different buys, our discipline says we have to go the other way now that prices have moved up. We're trimming Emerson Electric (EMR) after the industrial reported earnings last week and surprisingly missed estimates for its fiscal fourth quarter, ending the trend of improving execution we saw play out in the previous two quarters. Not only did the company miss, but next year's $0.35 to $0.40 EPS contribution of National Instruments failed to live up to expectations, representing a warning sign that the company paid too much in that deal. One thing going for EMR right now is that its valuation isn't expensive. On the $5.15 to $5.35 in adjusted earnings per share management guided to for fiscal year 2024, EMR trades at a multiple of roughly 16.5 times. That's well below its five-year average of 19 times and very cheap in the context of the portfolio transformation the company has gone through over the past few years, selling lower-growth, lower-margin businesses for faster-growing, higher-margin companies. Emerson's cheap valuation is why we plan to sell this position into pockets of strength rather than make big moves all at once. But our concerns about the company's execution make us a seller and not a buyer down here. With EMR up about $1.30 since falling $6.80 on earnings day, we'll make our first trim today and realize a disappointing loss of about 11% on stock purchased in December 2022. (Jim Cramer's Charitable Trust is long EMR. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Workers produce some of the specialized valves at Emerson Electric Co.'s factory in Marshalltown, Iowa, July 26, 2018. Timothy Aeppel | Reuters