The McClellan Oscillator (NYMO) and its longer-term complement the McClellan Summation Index (NYSI) comprise a set of technical tools widely followed among market technicians as a versatile measurement of market breadth.
Plotted against the NYSE Composite Index ($NYA), crosses above and below the NYMO’s zero-line (especially following amidst a thrust from +100 or -100) often mark the beginning of or provide confirmation of newly-unfolding directional moves index. Paired with constructive and deteriorating moves in the Summation Index – especially during narrow congestion zones – the McClellan Oscillator is adept at signaling probable short and medium-term market turns (to learn more about NYMO and NYSI, go here).
The NYA throughout the second half of 2013 has provided several excellent examples thus far; and appears to be setting up another.
NYSE Composite Index (NYA) – Daily: Rising Channel Pullbacks
In the chart below, you’ll note a series of blue rectangles on the main chart panel, aligned with rectangles on the first (NYMO) and second (NYSI) panels below it. These rectangles mark a period during which a) price is meandering aimlessly in a short-term congestion zone, b) the McClellan Oscillator prints multiple consecutive bars below its zero-line; and c) the McClellan Summation Index has reversed at a locally-defined low (varies with context; here around -10,000) and is trending up in the context of the price congestion.
These conditions generally signal deteriorating breadth, presaging a price pullback while NYMO breaks down toward -100 and NYSI continues trending higher.
NYMO and NYSI can and do present similar signals at larger marker turns; but even in the context of 2013’s muted and brief pullbacks, it continues to function remarkably well. In combination with the rising trend line and fibonacci cluster resistance just overhead, a pullback to rising trend line support at bare minimum looks probable.
Twitter: @andrewunknown and @seeitmarket
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