McClellan Oscillator [McOsc]

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The McClellan Oscillator function determines the momentum of the market using the difference between two moving averages of advancing versus declining issues. Parameters ------------------ Advancing Issues     The number of issues (securities) that closed above their opening price. Declining Issues       The number of issues (securities) that closed below their opening price. Note that while this function is intended for use with these specific values, any values can be used for these parameters, including preprocessed values or values for a subset of the market. Indicator Value ------------------------ The McClellan Oscillator is calculated by taking the subtracting the number of declining issues from the number of advancing issues. A 5% exponential moving average of this value is then subtracted from a 10% exponential moving average of this value. The value oscillates around 0 with values falling into five ranges of values, called trading zones. For example, the following table shows the ranges for the New York Stock Exchange in 1969, when the oscillator was developed. Value          Meaning --------------------------------- > 100          Extremely Overbought 70 to100     Overbought -70 to 70     No Meaning -100 to -70  Oversold < -100         Extremely Oversold Different values will need to be used for other markets, such as the NASDAQ. In addition, since significantly more stocks are now traded on the New York Stock Exchange, these values may need to be adjusted to handle the increased number of issues. Since the McClellan Oscillator uses exponential moving averages, it will have values at the beginning of the data series. However, you may want to ignore the first 40 days of values since the 5% exponential moving average includes approximately 39 days worth of data. Usage ----------- The McClellan Oscillator is useful for determining the momentum of the market. Positive values indicate money is entering the market. Negative values indicate money is leaving the market. In other words, when the value crosses above zero, the market is trending towards having less advancing issues. When the value crosses below zero, the market is trending towards having less declining issues. This indicator makes a good overbought/oversold indicator for the market. When the value of the oscillator reverses in the Overbought or Oversold regions, the market will typically correct the overbought or oversold condition. For this method, entry/exit signals can be generated when the oscillator changes direction or when the value crosses out of the Overbought/Oversold region. Values in the Extreme regions are often strong enough to indicate a continuation of the current trend for several weeks. Therefore, care should be taken when trading against reversals in these regions. In general, broad market indicators can be used for trading against broad market indices through options, futures, and mutual funds. They can also be used to increase the effectiveness of more specific signals by adding confirmation or warning of upcoming trends. Source ------------ This indicator is based on an entry in "Technical Analysis From A To Z" by Steven B. Achelis. It was originally developed by Sherman and Marian McClellan and presented in their book "Patterns for Profit".