Summation Index - Market Breadth Indicator

What is the McClellan Summation Index

The McClellan Summation Index is a market breadth indicator which is the sum of the McClellan Oscillator.  While the McClellan Oscillator is use for active trading, the McClellan Summation is for more longer term investing.  The goal of the McClellan Summation Index is to determine when the market is in the process of changing from a bear to a bull market. 

McClellan Summation Index Formula

The Summation Index originally was the sum of the values for the McClellan Oscillator.  Over time the formula was refined to take in account the strength of the trend.  This new version of the McClellan Summation Index is called the Ratio Adjusted version.  Below is the formula for the McClellan Summation Index Ratio Adjusted:

Summation Index = 1000 + (10%Trend - 5%Trend) - [(10 x 10%Trend) + (20 x 5%Trend)]

Interpreting the McClellan Oscillator

The Index has a large range of values, but extreme readings can be an indication of a potential change in trend.  When the Index reaches a -1000, this is often the sign of a market bottom.  Conversely, a reading above +1600 is often indicative of a market top.  A new bull market occurs when the Summation Index moves below -1200 and quickly rallies above +2500. 

McClellan Summation Index Chart Example

Below is a chart of the McClellan Summation Index.  Notice how the Summation Index broke -1000 and is currently around -1500.  If the Summation Index is able to rally from this point to a +2500, this will be the beginning of a major bull market coming out of the credit crisis of 2008.