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McClellan Oscillator At Decade All Time Highs at Trader’s Narrative

From recent option sentiment readings we have reason to believe that after a fantastic “Santa Claus rally” the market is entering thin air territory - at least in the short term. To that we can add an important technical indicator: the McClellan Oscillator.

If you’re unfamiliar with it, it is simply a measure of underlying breadth and is calculated by taking the difference of advancing and declining issues and then using this net breadth to calculate 39 day and 19 day exponential moving averages. The oscillator is then calculated by subtracting the former by the latter.

You can calculate this oscillator for any market and for each it will display different characteristics but usually, +100 is considered overbought and -100 oversold.

Here is the McClellan Oscillator for the NYSE:
nyse mccellan oscillator long term chart

I would take this chart with a grain of salt because over the years, a larger and larger portion of the issues traded on the NYSE is attributed to non-common stock securities like bonds, CEFs, municipal bond funds, preferreds, etc. But even so, the McClellan Oscillator is off the charts!

And this is the McClellan Oscillator for the Nasdaq:
nasdaq mccellan oscillator long term chart

It is important to note that this technical indicator compliments the view that option traders provide because they are both short to medium term in nature. It wouldn’t make much sense using a long term indicator, like say, the Coppock Curve to confirm a short term indicator - or vice versa.

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7 Responses to “McClellan Oscillator At Decade All Time Highs”  

  1. 1 Anon

    Here is a question for you:

    We are assuming, currently, that the markets are overbought. Let’s say the indices [namely DJI/ NDAQ/ SPX] are withing tight range [example Dow is within 8900 - 9100 + / -] for a period of 2 or 3 weeks. It is possible.

    Will the oscillator stay at the same level [@ 120] or will it go down?

  2. 2 Mr Risk

    On the one hand, the oscillator is at an extremely overbought level. On the other hand, everyone I talk to is going to buy on the next sell-off.

  3. 3

    looks more like Steve “McClellan” from the BULLET, off to the races! LOL. … nice post!

    buy the bucket!

  4. 4 Robert

    I contacted Worden Bros. a few years ago and asked them about their McClellan calculation. He told me that they don’t include any of those non-stocks in their T2106 indicator. It is currently at 345.22.

  5. 5 Alpha Trading

    Thanks for the great post Babak!

  6. 6 John

    Thats a good point.This is a link that shows the historical market tendency after high Mc OSc readings.

  7. 7 Vin

    McClellan Oscillator

    Hi Babak, I revisited your post from Jan 7th on the McClellan Oscillator. Can you please post the updated chart through this weekend?

    Also, do you have peaks and lows of the Oscillator matched to NYSE or Nasdaq high and lows. I wonder how well it’s correlated.

    Thanks partner and keep up the great work.

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