A pulse oximeter will give you a reading on a pen, pencil, toothbrush etc. It might give you a heart rate too. That's doesn't mean it's defective or the pen is alive. 
You are simply using
it incorrectly. You are supposed to use it on the finger, not on a pencil. When you insert a pencil, the LED will still flash, the pen surface will reflect varying amounts of light back to the photodetector and the instrument estimates a reading.
How can you place a thermometer in a cup of tea and claim this thermometer indicates that I got fever and it's faulty?
However, please read below - copied from one of my previous post on these gadgets. FYI.
The low cost devices are notoriously inaccurate with dark skins. They overestimate arterial oxygen saturation during hypoxia in dark-skinned individuals.
These oximeters work by using an LED that emits two or more wavelengths and a photo-detector which measures the difference light absorption in oxygenated or deoxygenated blood.
The cheaper ones are only accurate
above 93% SpO2. Also they have an issue with the brown skin with false readings. The accuracy deteriorates with progressive hypoxaemia. A
measurement of <93% on the portable device is
cause for serious concern.
Here's the FDA take on their
approved oximeters..... There are FDA
approved oximeters for home use. Then there are
medical grade oximeters.
"However, real-world accuracy may differ from accuracy in the lab setting. While reported accuracy is an average of all patients in the test sample, there are individual variations among patients. The SpO2 reading should always be considered an
estimate of oxygen saturation. For example,
if an FDA-cleared pulse oximeter reads 90%, then the true oxygen saturation in the blood is generally between 86-94%. Pulse oximeter accuracy is highest at saturations of 90-100%, intermediate at 80-90%, and lowest below 80%.
Due to accuracy limitations at the individual level, SpO2 provides more utility for trends over time instead of absolute thresholds. Additionally, the FDA only reviews the accuracy of
prescription use oximeters, not OTC oximeters meant for general wellness or sporting/aviation purposes."
They also say
- Do not rely only on a pulse oximeter to assess your health condition or oxygen level.
There's certainly handy in having one, but you need to know it's capabilities and limitations.
PS: I have a Masimo MightySAT which is hospital grade and fairly accurate - The Masimo uses their SET technology (signal processing) to estimate the values. The readings from this differs from the low cost devices.
