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To: Les H who wrote (1769)	4/12/2002 5:10:52 PM
From: Les H	Respond to of 29599

McClellan summ/osc Apr 11 The McClellan oscillator reversed course sharply today, from positive to negative, after only one day positive and after appearing likely to be starting a new uptrend on Wed. The oscillator completed a “full” selling cycle on Tuesday, with the last negative reading on Tuesday completing 15 trading days below zero, or three full weeks, and five full weeks following the recent buying momentum peak of +173 on March 6. On Wednesday the oscillator turned sharply positive to a reading of +59. Normally, commentators would take that to mean a strong indication of an upturn. However, in my experience there are many times when the oscillator does a “fake out”, and this happened to be one of those times. That is why I am usually cautious the first time the oscillator turns positive, to see that there is follow through the next day or two. I have marked with red arrows on the charts two other recent times when the oscillator turned positive for 1-3 days, at about the same level around +50 or so, then suddenly reversed and turned negative. In each case, the market continued the trend in the down direction for an additional trading cycle. We should be cautious for this possibility. As for the negative possibility, the oscillator has met its customary duty to complete a full cycle, in this case, a 15 trading day negative cycle, by going positive at least one day. It is now capable of returning to another full negative trading cycle if it chooses. You can see that the negative oscillator cycle of the past three weeks has served to “work off” the summation index from its high level reading and overhead resistance at +3300, to a current reading of +2650. The market could turn up here and have some room to run back up to the top of the trading range, which is about enough “buying power” to push to the Dow to the 11000 level. However, the market could equally continue the decline all the way back down to the bottom of the recent summation lows at about +1800 to +1900, or even lower. So we will need to watch the oscillator closely the next few days for the indication as to Which Way it is going to Go. My observation is that, if the oscillator does start another selling cycle, there is the potential for the market declining a bit more than most may be thinking, very possibly breaking the February lows of 1074, at least on SPX and also NASDAQ. (Dow is another story – the Dow/ SPX ratio expanded today to a record 9.21, meaning, “let’s keep those 30 Dow stocks up no matter what”). I say that because the oscillator has a “lot of room” to move on the downside if it turns lower again. You can see the good selloff in the market today and the oscillator barely went negative, from +59 to –14. The fact that that oscillator ended today at a lower reading than the day before it went positive (-14 vs. –2) is another clue this selling cycle may continue. First, while the oscillator did turn negative today (-14), it needs to move clearly beyond the “neutral zone”, which is generally between –30 and +30. When the oscillator is in the “neutral zone” it can whipsaw in both directions for a day or a few days, generally coinciding with the market forming some type of corrective pattern. Assuming the oscillator does turn “clearly negative”, then we will have to watch in the event it puts in a “double bottom” or a “higher bottom” above the previous lows at –125 or higher, in which case it could be considered a “buy spike” and signal a strong change in trend to the upside. But even with the oscillator putting in a “higher low”, that could still be a few more days of selling resulting in still lower market prices before a change in trend/ index price bottom. Finally, there is still the possibility that the oscillator could surprise and start making lower lows since the September rally began, below the recent lows of –125 to –130 area. The oscillator is overdue for a negative retest/ low extreme spike, as there is an intermediate term 22-24 week cycle in these indicators. It has now been 27 weeks since the September spike lows. If and when a break occurs below the recent oscillator lows, it would coincide with strong selling action in the market and much lower prices. While I don’t expect a retest of the September extreme readings below –300 on the oscillator, I would not be surprised to see it reach the –200 range. It could happen anytime, and it is overdue.