NYMO

McClellan Oscillator

Developed by Sherman and Marian McClellan, the McClellan Oscillator is a breadth indicator derived from each day's net advances, the number of advancing issues less the number of declining issues. Subtracting the 39-day exponential moving average from the 19-day exponential moving average of net advances forms the oscillator.

Similar to MACD, the McClellan Oscillator is a momentum indicator that is applied to the advance/decline statistics. When the 19-day EMA (shorter moving average) moves above the 39-day (longer moving average) EMA, it signals that advances are gaining the upper hand. Conversely, when the 19-day EMA declines below the 39-day EMA, it signals that declining issues are dominant. As a momentum indicator, the McClellan Oscillator attempts to anticipate positive and negative changes in the AD statistics for market timing.

Buy and sell signals are generated as well as overbought and oversold readings. Usually, readings above +100 are considered overbought and below -100 oversold. Overbought and oversold readings may vary among indices and historical precedent. Buy signals are generated when the oscillator advances from oversold levels to positive territory. Sell signals are generated on declines from overbought to negative territory. Traders may also look for positive or negative divergences to time their trades. A series of rising troughs would denote strength, while a series of declining peaks weakness.

Calculation

When calculating the McClellan Oscillator, the ratio adjusted index is often used for easier comparisons over long periods of time. The basic input for the ratio-adjusted version is no longer the daily advances minus declines. Rather, you

1. Subtract declines from advances
2. Divide the result by the total of advances plus declines, and
3. Multiply that result by 1000. (Multiplying by 1000 is simply cosmetic and lets us work with whole numbers instead of decimals.)

The rest of the calculations for the Oscillator are the same.

Example

The above chart shows the breakdown of the McClellan Oscillator. The top window shows the 19-day EMA and the 39-day EMA of the NYSE advance-decline issues, and the lower window shows the ratio adjusted McClellan Oscillator line. Notice that the 19-day and 39-day EMA crossovers correspond with zero-line crossovers on the McClellan Oscillator.

StockCharts.com provides one-year charts of the McClellan Oscillator for the NYSE and NASDAQ markets.