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StockHouse.com Interview - August 20, 1999
By Christos Livadas (christos@stockhouse.com)
Tom McClellan Calls Another Market Bottom on September 15th
• • •
The surname McClellan may be familiar to many technical
analysts who utilize the McClellan Oscillator and McClellan
summation index. Since the genesis of those technical
indicators, the McClellan family has developed other
proprietary indicators, including one that helps identify future
market turning points. This past week, The McClellan Market
Report was ranked number one by Timer Digest for this market
timing on stocks over the past twelve months. The McClellan
report comes out as a two page Daily Fax Edition and a twice
monthly eight page newsletter. Both discuss the overall
markets: stocks, bonds and gold.
You can find out more about The McClellan Market Report at www.mcoscillator.com.
StockHouse members can receive a free sample newsletter by snail mail upon notifying Mr.
McClellan that this interview was read on StockHouse..
• • •
StockHouse: You're frequently quoted, your Oscillator is frequently quoted throughout the financial
press and on CNBC-TV, but rarely do we see you actually interviewed. Do you get interviewed a lot or
not?
Tom McClellan: Some places we do. There is a business channel in Los Angeles called KWHY that
we appear on frequently. On CNBC-TV, the number is [quoted], but they don't call me very often for
some reason.
StockHouse: Could you tell us about the McClellan Oscillator and the McClellan summation index?
Tom McClellan: The Oscillator was developed by my parents, Sherman and Marion McClellan, in
1969. This is back in the dark ages of technical analysis when people didn't admit that they kept charts
of stocks because that was frowned upon and you could lose your job on Wall Street if you were a
chartist.
It's an oscillator, and like any other oscillator it's got a neutral level, which in this case is zero. It
indicates over-bought and over-sold and when it's above neutral it's good and when it's below neutral it's
bad, but there's a lot more to it than that.
The McClellan Oscillator is based on the daily difference between advancing and declining issues on
the New York Stock Exchange. You can also do it on other data. That daily difference number is
smoothed using two different exponential moving averages and then the differences between those two
different exponential moving averages is the oscillator.
StockHouse: Is that the 39-day exponential moving average?
Tom McClellan: Some people refer to it as a 19- and 39-day exponential moving average. We don't
use that terminology because we think that it's misleading. We say that it's a 10% trend and a 5%
trend referring to the tracking rates or the smoothing constant that drives that exponential moving
average.
StockHouse: And the summation index?
Tom McClellan: The summation index is merely a total of all previous McClellan Oscillator values and
so every day it changes by the value of the oscillator. So if the oscillator was minus 100 today then the
summation index would be 100 points lower than it was yesterday. And if it's calculated and calibrated
properly it'll be neutral at the +1,000 level.
StockHouse: Aside from calling tops and bottoms of the markets or oversold and overbought, could this
apply to individual stocks?
Tom McClellan: No. That's a short answer. It's a market based indicator so you're looking at all of the
stocks in the entire New York Stock Exchange and trying to understand what they are doing as a
group. So that information is suitable for trying to understand what the money flow is and what the
liquidity is for the overall market.
To the extent that an individual stock is going to correlate with the overall market, then it's useful
information. But it won't help you thoroughly to use this indicator with an individual stock. You can use
the same calculation technique, the same two different moving averages and the difference between
them and get what we call a price oscillator, which is useful for looking at individual stocks or individual
price-based indices like the Dow or S&P 500. That's another indicator that we use.
StockHouse: Will this apply to Nasdaq?
Tom McClellan: Sure. The interesting thing about the Nasdaq is that the breadth on the Nasdaq has a
much more inherently negative bias than the New York Stock Exchange breadth. If you look at an
Advance/Decline chart for the Nasdaq, it basically goes down in an almost uniform slope ever since the
inception of the Nasdaq back in 1971.
In fact, the trivia question you can ask is: When was the last time the Nasdaq Advance/Decline line
made a new all time high? And the answer is: Never. It has never ever made a new all time high. It's
gone down and down and down ever since the beginning.
StockHouse: Is that bad?
Tom McClellan: Well, it's not bad or good. It's just what it is. The Nasdaq, except for the big five -
Cisco, Microsoft, those kinds of stocks - is really the minor leagues for stocks. A company that's going
to come public and go broke is much more likely to do that on the Nasdaq than on the New York Stock
Exchange. You have to achieve higher standards to be listed on the New York Stock Exchange. So
you've got to be a real player.
There are a lot more companies that are going to end up being losers on the Nasdaq. That's the nature
of the beast. To the extent that you have stocks that go down more on the Nasdaq, that's going to show
up more in their Advance/Decline numbers. Once you take that into account however, you can still use
it for analysis, but you have to understand that that's part of how it works. So it's not necessarily
bearish just to have a Nasdaq A/D line making new lows. It sometimes is, but not necessarily. It's just
kind of the way it always has been.
StockHouse: Are we looking at a bearish or bullish direction with the New York Stock Exchange
composite?
Tom McClellan: If you look in the rear view mirror, you're looking at a bearish condition and most
indicators do that. They tell you what has gone on. The McClellan Oscillator and summation index are
no different. They're showing you that it has been bearish. And so then you have to infer: Has it been
bearish long enough or deep enough to say that we should be turning around? And it's our suspicion
that we have.
StockHouse: Do you believe that the market is over sold at this point and is in a turn-around phase or a
potential turn around phase?
Tom McClellan: Uh huh.
StockHouse: So is it potential or is it actual?
Tom McClellan: Ask me a month from now.
StockHouse: Come again?
Tom McClellan: Well, there's a few important things to understand. The first one is right now we're in
the third year of our [US] presidential term. Since 1940, the third year of a presidential term has never
been a down year, including 1987, when we had a big downward period in that year, but the year still
finished up. So never and always are words that you hardly ever get to use when you're talking about
the stock market.
When you've got the third year [that] is always up every time since 1940, that's a significant thing to
understand. So far, we're looking like this year's going to be an up year also. You don't get major bear
markets like we had in 1990 or like we had last year that occur in the third year with the exception of
1987. And what it took to do that was the Fed aggressively raising interest rates and talking down the
market all at once and you had a crash. That can be happening at any time, especially with a Fed
meeting coming up here. But aside from proactive measures by the Fed to really take the market apart,
you don't have bad things happening in a third year.
StockHouse: There seems to be a lot of hot talk about how the Fed is going to take apart the market or
at least that's the way many of the wire stories are sounding.
Tom McClellan: Good. That means that everybody's worried about it. Usually, the thing that
everybody's most worried about is the thing that doesn't end up coming true or being the biggest
problem in the stock market. The fact that everybody is worried about it and that it's depressing
investors is actually a positive thing.
StockHouse: Have we seen the summer bottom?
Tom McClellan: Yes, and we should see one more on September 15th.
StockHouse: Lower than the current low or higher than the current low, or the most recent low?
Tom McClellan: It should be higher but it has the potential to be lower if the Fed goes stupid on the
24th of August.
StockHouse: Do you foresee that the Dow will end up higher than it is now by the end of the year?
Tom McClellan: Yeah, we should, but I don't feel strongly about that. November and December should
be much better months than September and October will be.
StockHouse: Thank you very much, Mr. McClellan.
Disclaimer: The opinions expressed herein do not necessarily represent the views of StockHouse Media Corporation or any
subsidiaries or affiliates thereof.
Home BullBoards News Releases Newsletters The Markets Member Services
Disclaimer
© Copyright 99 StockHouse.com,
All Rights Reserved.
StockHouse.com Interview - August 20, 1999
By Christos Livadas (christos@stockhouse.com)
Tom McClellan Calls Another Market Bottom on September 15th
• • •
The surname McClellan may be familiar to many technical
analysts who utilize the McClellan Oscillator and McClellan
summation index. Since the genesis of those technical
indicators, the McClellan family has developed other
proprietary indicators, including one that helps identify future
market turning points. This past week, The McClellan Market
Report was ranked number one by Timer Digest for this market
timing on stocks over the past twelve months. The McClellan
report comes out as a two page Daily Fax Edition and a twice
monthly eight page newsletter. Both discuss the overall
markets: stocks, bonds and gold.
You can find out more about The McClellan Market Report at www.mcoscillator.com.
StockHouse members can receive a free sample newsletter by snail mail upon notifying Mr.
McClellan that this interview was read on StockHouse..
• • •
StockHouse: You're frequently quoted, your Oscillator is frequently quoted throughout the financial
press and on CNBC-TV, but rarely do we see you actually interviewed. Do you get interviewed a lot or
not?
Tom McClellan: Some places we do. There is a business channel in Los Angeles called KWHY that
we appear on frequently. On CNBC-TV, the number is [quoted], but they don't call me very often for
some reason.
StockHouse: Could you tell us about the McClellan Oscillator and the McClellan summation index?
Tom McClellan: The Oscillator was developed by my parents, Sherman and Marion McClellan, in
1969. This is back in the dark ages of technical analysis when people didn't admit that they kept charts
of stocks because that was frowned upon and you could lose your job on Wall Street if you were a
chartist.
It's an oscillator, and like any other oscillator it's got a neutral level, which in this case is zero. It
indicates over-bought and over-sold and when it's above neutral it's good and when it's below neutral it's
bad, but there's a lot more to it than that.
The McClellan Oscillator is based on the daily difference between advancing and declining issues on
the New York Stock Exchange. You can also do it on other data. That daily difference number is
smoothed using two different exponential moving averages and then the differences between those two
different exponential moving averages is the oscillator.
StockHouse: Is that the 39-day exponential moving average?
Tom McClellan: Some people refer to it as a 19- and 39-day exponential moving average. We don't
use that terminology because we think that it's misleading. We say that it's a 10% trend and a 5%
trend referring to the tracking rates or the smoothing constant that drives that exponential moving
average.
StockHouse: And the summation index?
Tom McClellan: The summation index is merely a total of all previous McClellan Oscillator values and
so every day it changes by the value of the oscillator. So if the oscillator was minus 100 today then the
summation index would be 100 points lower than it was yesterday. And if it's calculated and calibrated
properly it'll be neutral at the +1,000 level.
StockHouse: Aside from calling tops and bottoms of the markets or oversold and overbought, could this
apply to individual stocks?
Tom McClellan: No. That's a short answer. It's a market based indicator so you're looking at all of the
stocks in the entire New York Stock Exchange and trying to understand what they are doing as a
group. So that information is suitable for trying to understand what the money flow is and what the
liquidity is for the overall market.
To the extent that an individual stock is going to correlate with the overall market, then it's useful
information. But it won't help you thoroughly to use this indicator with an individual stock. You can use
the same calculation technique, the same two different moving averages and the difference between
them and get what we call a price oscillator, which is useful for looking at individual stocks or individual
price-based indices like the Dow or S&P 500. That's another indicator that we use.
StockHouse: Will this apply to Nasdaq?
Tom McClellan: Sure. The interesting thing about the Nasdaq is that the breadth on the Nasdaq has a
much more inherently negative bias than the New York Stock Exchange breadth. If you look at an
Advance/Decline chart for the Nasdaq, it basically goes down in an almost uniform slope ever since the
inception of the Nasdaq back in 1971.
In fact, the trivia question you can ask is: When was the last time the Nasdaq Advance/Decline line
made a new all time high? And the answer is: Never. It has never ever made a new all time high. It's
gone down and down and down ever since the beginning.
StockHouse: Is that bad?
Tom McClellan: Well, it's not bad or good. It's just what it is. The Nasdaq, except for the big five -
Cisco, Microsoft, those kinds of stocks - is really the minor leagues for stocks. A company that's going
to come public and go broke is much more likely to do that on the Nasdaq than on the New York Stock
Exchange. You have to achieve higher standards to be listed on the New York Stock Exchange. So
you've got to be a real player.
There are a lot more companies that are going to end up being losers on the Nasdaq. That's the nature
of the beast. To the extent that you have stocks that go down more on the Nasdaq, that's going to show
up more in their Advance/Decline numbers. Once you take that into account however, you can still use
it for analysis, but you have to understand that that's part of how it works. So it's not necessarily
bearish just to have a Nasdaq A/D line making new lows. It sometimes is, but not necessarily. It's just
kind of the way it always has been.
StockHouse: Are we looking at a bearish or bullish direction with the New York Stock Exchange
composite?
Tom McClellan: If you look in the rear view mirror, you're looking at a bearish condition and most
indicators do that. They tell you what has gone on. The McClellan Oscillator and summation index are
no different. They're showing you that it has been bearish. And so then you have to infer: Has it been
bearish long enough or deep enough to say that we should be turning around? And it's our suspicion
that we have.
StockHouse: Do you believe that the market is over sold at this point and is in a turn-around phase or a
potential turn around phase?
Tom McClellan: Uh huh.
StockHouse: So is it potential or is it actual?
Tom McClellan: Ask me a month from now.
StockHouse: Come again?
Tom McClellan: Well, there's a few important things to understand. The first one is right now we're in
the third year of our [US] presidential term. Since 1940, the third year of a presidential term has never
been a down year, including 1987, when we had a big downward period in that year, but the year still
finished up. So never and always are words that you hardly ever get to use when you're talking about
the stock market.
When you've got the third year [that] is always up every time since 1940, that's a significant thing to
understand. So far, we're looking like this year's going to be an up year also. You don't get major bear
markets like we had in 1990 or like we had last year that occur in the third year with the exception of
1987. And what it took to do that was the Fed aggressively raising interest rates and talking down the
market all at once and you had a crash. That can be happening at any time, especially with a Fed
meeting coming up here. But aside from proactive measures by the Fed to really take the market apart,
you don't have bad things happening in a third year.
StockHouse: There seems to be a lot of hot talk about how the Fed is going to take apart the market or
at least that's the way many of the wire stories are sounding.
Tom McClellan: Good. That means that everybody's worried about it. Usually, the thing that
everybody's most worried about is the thing that doesn't end up coming true or being the biggest
problem in the stock market. The fact that everybody is worried about it and that it's depressing
investors is actually a positive thing.
StockHouse: Have we seen the summer bottom?
Tom McClellan: Yes, and we should see one more on September 15th.
StockHouse: Lower than the current low or higher than the current low, or the most recent low?
Tom McClellan: It should be higher but it has the potential to be lower if the Fed goes stupid on the
24th of August.
StockHouse: Do you foresee that the Dow will end up higher than it is now by the end of the year?
Tom McClellan: Yeah, we should, but I don't feel strongly about that. November and December should
be much better months than September and October will be.
StockHouse: Thank you very much, Mr. McClellan.
Disclaimer: The opinions expressed herein do not necessarily represent the views of StockHouse Media Corporation or any
subsidiaries or affiliates thereof.
Home BullBoards News Releases Newsletters The Markets Member Services
Disclaimer
© Copyright 99 StockHouse.com,
All Rights Reserved.
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