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Advance/Decline Line
Arms Index (TRIN)
Bullish Percent Index
McClellan Oscillator
McClellan Summation Index
New Highs/New Lows
Put/Call Ratio
VIX and VXO

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McClellan Oscillator

The McClellan Oscillator is a market breadth indicator developed by Sherman and Marian McClellan. It is the smoothed difference between advancing and declining issues on the NYSE.

The oscillator typically fluctuates between -100 and 100. If the oscillator rallies to between 70 and 100 and then turns down, the underlying market is believed to be overbought and a sell signal is offered. If the oscillator drops to between -70 and -100 and then bounces, the underlying is thought to be oversold and a buy signal if given.

If the McClellan Oscillator goes beyond the 100 or -100 marks, a short-term reversal may briefly occur, but it is very likely the trend will continue.




We realize this chart is hard to read, so we'll walk you through it. The bottom line is the McClellan Oscillator. You can see how it basically meanders up and down. The text book use of the oscillator is to buy the underlying issue when the oscillator goes below -70 and then turns up and to sell or sell short when the oscillator goes above 70 and turns down. From the above example, each buy signal was indeed a good signal, but each sell signal merely indicated a pause in the existing uptrend and shorting would have at best been a breakeven proposition.

The opposite scenario probably would exist for a downtrending stock. Sell signals would work great while buy signals merely indicate a pause in the downtrend.


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