McClellan Oscillator

Description

The McClellan Oscillator was created by Sherman and Marian McClellan and published in their 1970 book Patterns for Profit. It converts the raw advance/decline data of the A/D Line into an oscillator format, making it easier to identify overbought/oversold breadth conditions and detect when market internals are shifting. It measures the rate of change of breadth, not just its direction.

How It Works

Daily Net Issues = Advancers − Decliners across the index. Two EMAs of this daily net figure are calculated: a 19-day EMA and a 39-day EMA. The McClellan Oscillator = 19-day EMA − 39-day EMA. When the shorter EMA is above the longer, the oscillator is positive (breadth improving); below, it is negative (breadth deteriorating). The companion Summation Index is calculated by adding each day’s oscillator value cumulatively.

How to Read It

Above zero: breadth is net positive, with more stocks advancing than declining on a smoothed basis. Below zero: net negative. Extreme readings — typically +100 or better, or −100 or worse — signal overbought or oversold breadth. Divergences between the oscillator and the index price are the most actionable signals: index rising to new highs while the oscillator makes lower highs suggests deteriorating broad-market health.

Common Uses

• Short-to-intermediate market timing for index traders
• Detecting breadth divergences before index tops or bottoms
• Identifying overbought/oversold market conditions
• Confirming the durability of market rallies and declines

Caveats

The McClellan Oscillator requires daily advance/decline data for the specific index being analyzed. It is a macro-level tool applicable to market timing, not individual stock selection. The original parameters (19/39) were calibrated for NYSE breadth data — applying them to other exchanges or indices may require recalibration. Like all breadth indicators, divergences can persist for extended periods before the market follows.