McClellan Oscillator
Definition:
The McClellan Oscillator is a technical indicator based on the New York Stock Exchange, not any one particular stock. It is a short term and intermediate term "market breadth" indicator, meaning it is designed to determine the strength of a market trend. This is based on the concept that a robust uptrend or downtrending market is characterized by a large number of stocks advancing or declining moderately, rather than a small number of stocks making large gains or losses. The McClellan Oscillator is calculated by subtracting a 39-day exponential moving average of the difference between the advancing issues and the declining issues from a 19-day exponential moving average of the difference between the advancing issues and the number of the declining issues in the New York Stock Exchange.
Interpretation:
Volatility has several uses and potential interpretations. There are two major sets of interpretations for the McClellan Oscillator.
The first interpretation is to use regions to derive bullish and bearish signals. If the Oscillator extends below -100 or above 100, it represents extreme oversold/overbought conditions, and suggests a continuation of the current downtrend or uptrend for a short-to-intermediate period of time, respectively.
If the McClellan Oscillator falls into the -70 to -100 region and turns up, it can be considered bullish. On the other hand, if it rises into the +70 to +100 region and turns down, it can be considered bearish.
The second interpretation is to look at whether the Oscillator is positive or negative.
- When the indicator goes from negative to positive, a bullish signal is generated.
- When the indicator goes from positive to negative, a bearish signal is generated.
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