McClellan Oscillator and Summation Index

The McClellan Oscillator is a market breadth indicator that measures the momentum of advancing versus declining stocks. It was developed in 1969 by Sherman and Marian McClellan. Where the Advance/Decline Line shows the trend of participation, the oscillator shows whether that participation is speeding up or slowing down. Its companion, the McClellan Summation Index, adds the oscillator up into a slower line for the intermediate-term trend.

How it is calculated

Net advances       = advancing stocks - declining stocks
McClellan Osc.     = 19-day EMA of net advances - 39-day EMA of net advances
Summation Index    = previous Summation Index + today's McClellan Osc.

The two averages are traditionally described by their smoothing constants, 10% and 5%, which correspond to roughly 19 and 39 days. When net advances have improved recently, the faster average rises above the slower one and the oscillator turns positive. The Summation Index rises as long as the oscillator is above zero and falls while it is below zero, so its direction shows whether breadth momentum has been positive over recent weeks.

A widely used variation, the ratio-adjusted oscillator, divides net advances by the total of advances and declines before averaging. That keeps readings comparable over time as the number of listed stocks changes.

How to read it

• Zero line. A cross above zero means breadth momentum has turned positive; a cross below zero means it has turned negative.
• Overbought and oversold. For NYSE data, readings of +70 to +100 have traditionally been treated as overbought and −70 to −100 as oversold, with a turn back from those zones as the signal.
• Extremes as strength. Readings far beyond those zones often mark a powerful thrust rather than an exhaustion. A very high reading early in a rally is usually a sign of strength, so traders wait for pullbacks rather than sell.
• Divergence. If the index makes a new low while the oscillator makes a higher low, fewer stocks are joining the decline. The reverse at highs warns of a narrowing rally.
• Summation Index turns. A turn up from a deep low often confirms a market bottom, and a turn down from a high warns that support for the advance is fading. Divergences between the index and the Summation Index can precede major trend changes.

Settings and common mistakes

• Fixed levels on every index. Calculated from raw counts, the oscillator’s range depends on how many stocks the index has: an index of 100 stocks cannot reach the readings of the NYSE. Compare a reading with the past extremes of the same index.
• Mixing Summation Index versions. The running total depends on its starting point, and the ratio-adjusted version uses a different scale, so published Summation Index levels do not carry over between data sources.
• Trading every zero cross. In a sideways market the oscillator crosses zero often. Use the Summation Index or the trend of the index to filter the signals.

Live chart: the NYSE Composite index, daily, with the McClellan Oscillator and the McClellan Summation Index of its members. The chart updates every trading day.

Screen for it on MarketInOut

Our formula language has the oscillator as mo and the Summation Index as msi, with volume-based versions as mvo and mvsi. They are calculated from an index’s members, so they work as a market filter with @index or on the index symbols themselves. Stocks crossing above their 50-day average while NYSE breadth momentum is positive and the Summation Index is rising (otherwise the screen returns nothing):

exch(nyse,nasdaq) and type(stock) and price > 1 and advol(21) > 1
and (mo > 0 and msi > msi@1)@nyse and price ca sma(50)

Major US indexes whose Summation Index is higher than a week ago:

ticker(dow.i, sp500.i, nasdaq.i, nyse.i, nasdaq100.i, russell2000.i)
and msi > msi@5

Related: MACD, Moving averages, Dow Theory.