McClellan oscillator is developed by Sherman and Marian McClellan.It represents the total difference of the advancing and declining issues on the New York Stock Exchange.McClellan oscillator is a breadth indicator and is based on the advancing and declining issues.It 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 end of bull market is shown by the type of divergence that gives wrong impression of market health.
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
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.
