This is A LINK TO 'McClellan Oscillator'
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open it in different window and read this article going back and forth to the decision point...
Now go through this excellent article and apply it on the chart above and you will find what is the future of this market based on..'McClellan Oscillator' fwiw..
. 'Recently I came across this term 'McClellan Oscillator.' What is it? How is it derived? And any other information you can give me on this bird would be appreciated.' -- Peter
A. Okay, gang, hang in throughout this long answer -- it's worth it. You'll be a smarter investor if you make it to the end:
The McClellan Oscillator, developed in 1969 by Sherman and Marian McClellan, is a technical indicator used to gauge when to enter and exit the stock market.
The indicator is based on the number of stocks that closed higher and those that closed lower on a trading day, known as daily breadth. A running cumulative total of daily breadth is the daily advance-decline line.
To identify trends in daily breadth, it's necessary to use a moving average. The McClellan uses a measure called exponential moving average (EMA) which weights the most recent data more heavily than older data. The amount of weighting assigned to the more recent data is known as a smoothing constant.
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There are two main ways to interpret the indicator:
First, a positive reading generally means money is coming into the market, while a negative reading indicates money is leaving the market.
Second, when the oscillator reaches extreme readings, it can signal an overbought or oversold condition. Overbought conditions indicate a market that may be ready to drop back in the near-term. Oversold conditions, the opposite.
In numerical terms, a reading above zero suggests that the market is positive, while a reading below zero indicates negative sentiment. As the reading moves above +100, it indicates an overbought condition, whereas below -100 represents an oversold condition.
A more long-term application of the McClellan Oscillator is known as the Summation Index. This measure generally moves between 0 and +2,000. When the Index moves outside these levels an unusual condition is occurring.
The most significant use of the Summation Index is to identify the end of a bear market and the confirmation of a new bull market. Bear markets typically end with The Summation Index below -1,200. A strong rise from such a level can signal the beginning of a new bull market, confirmed when the index rises above +2,000. Historically such a confirmation has resulted in bull markets lasting at least 13 months with the average ones lasting 22-24 months.
I know this is a lot to take in. If you have follow-up questions, send them into Investor U.(TM). I'll be glad to take a crack at them.
Chris Bulkey
Senior Analyst
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