V.7:9 (298-300): The McClellan Oscillator by Richard Mogey

V.7:9 (298-300): The McClellan Oscillator by Richard Mogey
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The McClellan Oscillator by Richard Mogey

The earliest chartists used price data to evaluate markets and found that market prices continually move from overbought to oversold and back again as if they were oscillating about an invisible, neutral line. The need to learn when the market was overbought or oversold led analysts to search for ways other than price to track the market. This led, in time, to the tracking of advances and declines. If a stock was higher at the close than the previous day, it was said to advance. If it was lower, it was said to decline.

It became obvious, however, that simply charting the total of advances or declines didn't bring the hoped for results . The logical extension of this was the Advance-Decline Line, which is the sum of each day's advances minus declines. This was helpful, but still it didn't address the need to understand the overbought-oversold oscillation of the market. Out of this need to understand, the McClellan Oscillator was born.

The McClellan Oscillator uses, as its raw data, the daily advances minus declines of the New York Stock Exchange. To this is applied a 10% and a 5% trend value equivalent, respectively, to a 20-day and a 40-day weighted moving average because these trend values reflect the two most dominant short-to-intermediate cycle lengths. The McClellan Oscillator is then the faster moving 10% trend value minus the slower 5% trend value.

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