[ Glossary menu ]
The McClellan Oscillator and Summation Index are a breadth-based indicator,
which means it is derived from the daily advances minus declines on the New
York Stock Exchange. These indicators were invented in the 1960's by Sherman
and Marion McClellan, and since then they have proven to be some of the most
useful analysis tools in existence.
The McClellans have written a book (54 pages,
soft cover) summarizing their work, titled "Patterns for Profit". It is available
for about $29 from
McClellan Financial Publications, Inc.
PO Box 39779
Lakewood WA 98496-3779
Also, the McClellan Market Report is
a highly regarded technical newsletter published by Sherman and Tom
McClellan. For more information
The exact calculation of the McClellan Oscillator is covered below, but it
is basically the result of subtracting a 39-day
exponential average of advances minus declines (5% Index) from a
19-day exponential average (10% Index).
The McClellan Oscillator is an intermediate-term
indicator, but it can also be used for short-term timing when it bottoms
in oversold territory -- in the area of -100 and below. When the McClellan
Oscillator moves below the Zero Line a SELL Signal is rendered, and a BUY
Signal results when it moves above zero; however, these are general guide
lines not hard rules guaranteed to result in profitable trading.
A "typical" McClellan Oscillator pattern series
consists of consecutive formation of a Complex Bottom, a Middle Spike, and
a Buy Spike. The typical Complex Bottom is a bowl-shaped series of oscillations
below the Zero Line while the market is declining. This is followed by a
move above well above zero which begins the formation of the Middle Spike
-- a stalactite between the move above zero and the move back below zero.
The Middle Spike signals the beginning of an intermediate-term up move, but
it is usually followed by another down move, possibly to lower lows. After
the down leg of the Middle Spike has concluded, we can expect a Buy Spike,
which as the name implies signals a new up trend in the market. Buy Spikes
are normally formed in oversold territory (-80 and below), but rising series
of Buy Spikes is also a possibility.
While this is a typical series of chart formations
that will help us identify changes in market direction and determine current
market status, unfortunately, they may not appear in the specified order
. . . or at all.
The McClellan Summation Index is a cumulative
total of the daily McClellan Oscillator readings. It is normally posted on
the chart as a series of dots so that we can observe the acceleration in
breadth as represented by the space between the dots.
McCLELLAN SUMMATION INDEX
The Summation Index is a long-term indicator which oscillates in relation
to a Zero Line. The normal range of movement is between Zero and +2000. Movement
below the Zero Line is considered bearish, while movement above +2000 is
considered bullish. Historical extremes are approximately +4000 and
The direction of Summation Index movement,
up or down, is an indication of whether money is moving in or out of the
market. When the Summation Index moves below the Zero Line it is an extremely
negative sign for the market and indicates that a long-term down trend is
in progress and is likely to become more severe; however, it is also likely
that a significant market bottom is a few weeks or months away. Once the
Summation Index drops below the Zero Line, we should anticipate a bottom
in the area of -1000 or below. Once that oversold Summation Index bottom
has formed, it provides strong evidence that a major market bottom is in
There are instances where Summation Index
oversold bottoms have formed and were followed by continued selling in the
market and lower Summation Index lows, so you should look at our historical
charts, which track this index back to 1926, to get an idea of its various
McCLELLAN OSCILLATOR and SUMMATION INDEX FORMULAS
The McClellan Oscillator is based on the daily NYSE advances minus declines.
Calculate a 39-day exponential moving average (0.05 exponent) average and
a 19-day exponential moving average (0.1 exponent) average. After calculating
the two averages each day, subtract the 39-day EMA from the 19-day EMA to
get the McClellan Oscillator value. Then add the daily McClellan Oscillator
value to the prior day's Summation Index (Summation Index) to get today's
The following are the exact formulas (the "*"
is the spreadsheet version of a multiplication sign):
((Today's Adv minus Decl - Prior Day's 5% Index) * 0.05) + Prior Day's 5%
Index = Today's 5% Index
((Today's Adv minus Decl - Prior Day's 10% Index) * 0.10) + Prior Day's 10%
Index = Today's 10% Index
(Note: The first time you begin to calculate
an exponential average, you must calculate a simple moving average.)
Today's 10% Index - Today's 5% Index = Today's McClellan Oscillator
McClellan Summation Index (Old Method):
Yesterday's Summation Index + Today's McClellan Oscillator = Today's Summation
McClellan Summation Index (New Method):
Mathematician James Miekka developed a new formula for calculating the daily
Summation Index that prevents drift and forces it to maintain a consistent
relationship with the Zero Line. Rather than adding the current McClellan
Oscillator value to the prior day's Summation Index (the traditional method,
which causes the undesired drift), the Miekka formula derives the Summation
value directly from the daily 5% and 10% index readings. This not only stabilizes
the Summation Index, it also allows you to calculate the Summation Index
for any day without knowing what the prior day's reading was. Also important,
the Miekka method insures that independent calculations will always be within
a few points of one another -- differences are often caused by rounding and
variances in advance-decline data.
The formula is:
Summation Index = 1000 - (9 * 10% Index) + (19 * 5% Index)
The McClellans have determined that the +1000
level is the neutral value for the Summation Index, which is the reason for
the "1000" in the formula.
The McClellans have given their blessing to
the Miekka formula, and, as far as I know, use it themselves.
RATIO ADJUSTED McCLELLAN OSCILLATOR
The increasing number of issues traded on the NYSE over the years has caused
the McClellan Oscillator and other breadth indicators to reach greater high
and low extremes over the years, but these new record highs and lows did
not accurately reflect the true internal condition of the market.
For example, let's compare the 1968-70 and
1998 Bear Markets, representing declines of about 36% and 20% respectively.
Even though the 1968-70 decline was much more severe, the McClellan Summation
Index readings (traditional calculation) were -2252 for 1970 and -3526 for
1998, giving the false impression that the 1998 Bear Market was worse than
1968-70. Using a ratio-adjusted calculation the Summation Index reading for
the 1970 low was -2402 compared to the 1998 low of -1444, clearly reflecting
the proportional relationships of the two bear markets, and making it possible
to make an accurate historical comparison.
This is an important change. For McClellan
Oscillator aficionados, there are two basic differences in the calculations.
First, 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. The second difference is that zero (0) is
now considered neutral for the Summation Index, so you no longer begin with
1000 in your Summation Index calculation.
This change in the basic breadth input described
above will also affect the STO (Swenlin Trading Oscillator), the ITBM
(Intermediate-Term Breadth Momentum) Oscillator, and the 1% EMA of
Advances-Declines -- they will become ratio-adjusted indicators. I will continue
to carry both versions of the McClellan Oscillator and Summation Index, but
only a ratio-adjusted version for the rest.