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What Is the McClellan Oscillator?
Let me explain the McClellan Oscillator directly: it's a market breadth indicator derived from the difference between the number of advancing and declining issues on a stock exchange, such as the NYSE or NASDAQ.
You use this indicator to spot strong shifts in sentiment within indexes, known as breadth thrusts. It also allows you to analyze the strength of an index's trend through divergence or confirmation.
Key Takeaways
You can apply the McClellan Oscillator formula to any stock exchange or group of stocks. A reading above zero confirms a rise in the index, while readings below zero confirm a decline.
When the index is rising but the oscillator is falling, it warns that the index could soon decline—this is divergence. Conversely, if the index is falling and the oscillator is rising, the index might start rising soon.
A significant change, like moving 100 points or more from negative to positive, is a breadth thrust, signaling a potential strong reversal from a downtrend to an uptrend on the exchange.
The Formula for the McClellan Oscillator
There are two formulas for the McClellan Oscillator: the original and an adjusted one that accounts for changes in the number of listed stocks, allowing better comparisons over time.
The standard McClellan Oscillator is (19-day EMA of Advances - Declines) - (39-day EMA of Advances - Declines). The 19-day EMA is (Current Day Advances - Declines) * 0.10 + Prior Day EMA, and the 39-day EMA is (Current Day Advances - Declines) * 0.05 + Prior Day EMA.
For the adjusted version, it's (19-Day EMA of ANA) - (39-Day EMA of ANA), where Adjusted Net Advances (ANA) is (Advances - Declines) / (Advances + Declines). The 19-day EMA is (Current Day ANA - Prior Day EMA) * 0.10 + Prior Day EMA, and the 39-day EMA is (Current Day ANA - Prior Day EMA) * 0.05 + Prior Day EMA.
Here, EMA stands for exponential moving average, Advances are stocks trading above their previous day's close, and Declines are those trading below.
How to Calculate the McClellan Oscillator
To start the calculation, track Advances - Declines for 19 and 39 days on your chosen exchange. Use simple averages for these as your initial Prior Day EMA values in the formulas.
Then calculate the 19- and 39-day EMAs, subtract them to get the McClellan Oscillator value. For subsequent days, use the previous oscillator value as the Prior Day EMA and switch to actual EMA calculations instead of simple averages.
If you're using the adjusted formula, follow the same steps but substitute ANA for Advances - Declines.
What Does the McClellan Oscillator Tell You?
As a market breadth indicator, the McClellan Oscillator helps you, as a technical analyst, assess the overall state of the stock market and the strength of its trends when combined with other tools.
Since it's based on all stocks in an exchange, compare it to the price movements of relevant indexes like the S&P 500. Positive values mean the 19-day EMA is above the 39-day EMA, indicating more stocks are advancing on average; negative values show the opposite.
A positive and rising oscillator suggests stocks are being accumulated, confirming an uptrend. A negative and falling one signals selling, confirming a downtrend. Crossovers between positive and negative can indicate trend changes.
A large move of 100 points or more from negative to positive is a breadth thrust, often meaning a market bottom and higher prices ahead. Divergence happens when the oscillator and index move oppositely: bullish if the oscillator rises while the index falls, signaling a potential upturn; bearish if the oscillator falls while the index rises, warning of a downturn.
The Difference Between the McClellan Oscillator and McClellan Summation Index
Developed by Sherman and Marian McClellan, the Oscillator differs from their McClellan Summation Index, which is a cumulative sum: it adds the current day's Oscillator to the previous day's Summation Index.
While the Oscillator suits shorter-term trend analysis, the Summation Index is better for broader, longer-term price trends.
Limitations of Using the McClellan Oscillator
The indicator generates many signals—breadth thrusts, divergences, crossovers—but not all lead to expected price moves, making it prone to false signals. Always combine it with price action and other indicators.
It can be choppy, flipping rapidly between positive and negative, which signals a choppy market but only becomes clear after several whipsaws. Study its behavior over long periods and various conditions before relying on it for trades.
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