McClellan Oscillator (McClellan Osc)
A spread between the quantity of issues being advanced and declined on the New York Stock Exchange are smoothed and form the basis of the McClellan Oscillator that was developed by Sherman and Marian McClellan and is an indicator of market breadth. This is one of the "breadth" indicators, which use the issues being advanced or declined in order to set the extent of the involvement in the stock, and currency markets fluctuations.
As well as MACD, the McClellan Oscillator finds out the extent of the involvement in the stock market fluctuations through declines and advances. A big amount of stocks rising temperately is an indicator of a stable bull market. If a price of low amount of stocks rises considerably then the bull markets fall back. The type of divergence that gives wrong impression of market health shows the end of bull market.
The range of Oscillator movement is mostly from -100 to +100. The Oscillator activities at the area from +70 to +100 followed by its decrease, signals an overbought situation and possibility to sell. The oscillator values situated from -70 to -100 followed by the growth is a common buy signal caused by oversold. When the oscillator falls after being at the area from +70 to +100 (an overbought area), then it gives a sell signal.
An extreme overbought or oversold can be seen in case the Oscillator gets the values over +100 or above -100 and it shows the trend development in the same direction. For instance, after the oscillator falling till -90 and then rising a buy signal occurs whether the oscillator being lower than -100 keeps the lower trend within two or three following weeks. It is better to perform buying after a number of oscillator's uptrends from the low values or market strength recovery. The oscillator going through zero line upwards or downwards indicates buy or sell signals for a medium term accordingly.
The way of the McClellan Oscillator calculation is capturing the 10% (approximately 19-day) and 5% (approximately 39-day) Exponential Moving Averages difference of issues being advanced and subtracting the declining ones.
(10% EMA Advances - Declines) - (5% EMA Advances - Declines)