McClellan Oscillator - Market Breadth Indicator


McClellan Oscillator Definition

The McClellan Oscillator represents the total difference of the advancing and declining issues on the New York Stock Exchange.  The indicator was developed by Sherman and Marian McClellan in 1969 by using the exponential moving average to better qualify the movement of the advancing and declining issues in the market.  Traders utilize the McClellan Oscillator to judge when the market is experiencing a trend changing event over a short and intermediate time frame. 

McClellan Oscillator Formula

The McClellan Oscillator is not a simple calculation like the advance/decline index.  The indicator attempts to judge the market based on a number of fixed periods versus in a linear fashion. 

McClellan Oscillator Formula

Interpreting the McClellan Oscillator

The McClellan Oscillator can be used to gauge the health of a market.  If the market is making higher highs, while the indicator is not increasing in value, the market is running out of steam.  This indicator is looking at the most recent 39 periods, so it will take in account recent market events.  Over the years the McClellan Oscillator has begun to develop certain extreme levels, which often lead to market tops and bottoms.  When the McClellan Oscillator reaches goes from a negative to a positive value, a buy signal can be triggered in the market.  Conversely, if the oscillator goes from positive to negative, the market has triggered a sell signal.  When the McClellan Oscillator reaches -100, the market is considered oversold, while a reading above 100 is overbought.

McClellan Oscialltor Chart Example

Below is a chart example of the McClellan Oscialltor.  Notice how the extreme low on the McClellan Oscillator at -125 caused a short-term bounce during the credit crisis of 2008.

McClellan Oscillator