S&P CNX Nifty Spot McClellan Oscillator – 01-09-2014
The McClellan Oscillator is a breadth indicator developed by Sherman and Marian McClellan, derived from Net Advances, the number of advancing issues less the number of declining issues. Subtracting the 39-day exponential moving average of Net Advances from the 19-day exponential moving average of Net Advances forms the oscillator. As the formula reveals, the McClellan Oscillator is a momentum indicator that works similar to other momemtum indicators like MACD. As with MACD, McClellan Oscillator signals can also be generated with breadth thrusts, centerline crossovers, overall levels and divergences.
Even though the McClellan Oscillator can be quite volatile, it can also remain positive or negative for extended periods during a strong uptrend or downtrend.
A breadth thrust occurs when the McClellan Oscillator surges from deep negative readings to strong positive readings. Typically, the indicator will move from below -50 and exceed +50 for a +100 point thrust. A breadth thrust signals a surge in bullish breadth that can lead to an extended advance. Not all breadth thrusts foreshadow extended advances, but most important lows are marked by a sharp surge in breadth. A breadth thrust is enhanced when preceded by a bullish divergence.
The McClellan Oscillator measures the momentum of the AD Line or Net Advances. As a momentum oscillator, it is prone to the pitfalls of normal momentum oscillators, such as MACD. Bearish and bullish divergences can produce some great signals, but these signals are certainly not fail-proof. The same is true for breadth thrusts and crosses into negative or positive territory. Like MACD, the McClellan Oscillator is a rather volatile indicator that produces many potential signals. Signals should be confirmed with other technical indicators and/or other chart analysis.