Technical Analysis, Studies, Indicators:
McClellan
Oscillator
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Studies
McClellan oscillator has been developed by
Sherman and Marian McClellan. McClellan oscillator is a breadth indicator and is
based on the advancing and declining issues.
McClellan oscillator is calculated as a difference between the fast (shorter
moving average) and the slow (longer moving average) exponential moving averages
applied to the net advances. The
formula to calculate the oscillator:
McClellan Oscillator = (EMA1 of
[(Advancing Issues - Declining Issues)/total Issues] - EMA2 of [(Advancing
Issues - Declining Issues)/total issues]) * 1000
To simplify the calculation the formula could
be split into 5 steps:
- Calculate (Advances - Declines) / Total
- Calculate fast exponential moving average (EMA1) of what you receive
from #1
- Calculate slow exponential moving average (EMA2) of what you receive
from #1
- #3 result subtract from #4 result
- Multiply by 1000 (to work with whole numbers)
The McClellan Volume Oscillator calculation
is similar with the difference that they are based in the advance-decline
volume. When the fast EMA moves above
the slow EMA we have positive McClellan oscillator and it indicates that the
advancing issues are dominant on the market. Conversely, when the fast EMA drops
below the slow EMA we have negative McClellan oscillator and it indicates that
the declining issues are dominant.
The McClellan Oscillator reflects positive
and negative changes in the Advance-Declines statistics which could be used in
the to anticipate the trend reversal.
High positive McClellan oscillator indicates
overbought market while the low negative levels indicate that the market is
oversold. As a rule (the same as with the SBV Oscillator), sell signals are
generated when the McClellan oscillator declines from overbought (high positive
levels) towards negative territory. Conversely, buy signals are generated when
the oscillator moves up from the low negative levels (oversold levels) in the
direction of the positive territory.
Chart 1: McClellan Oscillator and S&P 500
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