Interview: It's All In The Family: Sherman,Marian And Tom McClellan by Thom Hartle
The McClellan oscillator and the summation index are two popular technical indicators that have been around for more than 25 years, and in fact, the daily values are broadcast daily on CNBC. These tools, which can be found in most software packages, are used for identifying turning points in the stock market, but it's not often that you'll find an in-depth explanation included. So we decided to go to the source and ask the McClellans themselves Sherman and Marian, who first devised the indicators, and son Tom. Stocks & Commodities interviewed Sherman, Marian and Tom McClellan about these technical tools that bear their name. All three of the McClellans participated in the discussion.
Q: Sherman, I understand that the three of you wear a number of different hats.
SM: Our primary business is running a company called Admiral Plastics Corporation, which makes injection-molded plastic parts. We spend a normal amount of time running that business. Our second business is Sherman McClellan & Associates, which provides investment timing advice to institutional clients. In the evenings and on the weekends, we turn our focus to the markets, analyzing stocks and commodities, market indices and interest rates. Last year, our son Tom, who was a captain and helicopter
pilot in the Army, left the service after 11 years and joined my wife and me in managing our two businesses.
Q: The technical indicators that you're known for, the McClellan oscillator and the summation index, are based on the difference between the number of advancing and declining stocks. Why did you focus on that set of market statistics?
TM: Advances and declines were chosen as a basis for analysis because of the good correlation to the market, to something that you could actually buy. The cumulative A-D line is a good data source that divides out exactly who's voting for moving up and who's voting for moving down.
Q: Today, the advances and declines statistics include a large number of interest rate-sensitive stocks compared with just the common stocks. Have you looked at that issue?
SM: We keep separate indicators of common stock and all stocks on the New York Stock Exchange (NYSE), and we use Barron's data for that. The common stocks have underperformed the interest rate-sensitive stocks on the NYSE since the Fed started lowering interest rates in 1991. We expect now that the tightening has begun, the two groups will come back together. If there are no forces acting to change interest rates significantly, then those two groups generally track close together and overlay each other. That hasn't been the case since 1991.