Trader’s Narrative

The McClellan Oscillator and the Summation Index are based on the net number of advancing and declining stocks. They are breadth measures, in other words.

The oscillator is the net of two exponential moving averages based on the net advancers while the summation index is the cumulative of the daily oscillator numbers.

While the oscillator is usually used for short term timing, the summation index is used for intermediate to long term time frames. While the position of the summation index is important, the trend or slope is also used as a confirmation for a bullish or bearish market.

Usually, the summation index stays within +/-1000, extremes which mark an overbought and oversold market. Right now though, it is middle of the road, neutral. Like so many other indicators.

But if you notice, it seems to be coiling into a tighter and tighter range. And if you take out the magnifying glass, it has just dropped below the lower trendline.

Will last summer’s scenario play out again?