McClellan Summation Index [McSum]

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The McClellan Summation Index function determines the longer-term momentum of the market using a smoothed version of the McClellan Oscillator. 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 (EMA) of this value is then subtracted from a 10% EMA of this value. The McClellan Summation Index is calculated by adjusting the McClellan Oscillator to amplify the effects of older data. Ten times the 10% EMA and twenty times the 5% are subtracted from the oscillator. A value of 1000 is then added to the total value. Like the McClellan Oscillator, the McClellan Summation Index also oscillates around 0. However, unlike the faster moving oscillator, the summation index indicates when conditions are right for major trend reversals and continuations. The following table shows the suggested values for the New York Stock Exchange when this indicator was introduced in 1969. Value          Meaning --------------------------------- > 1900        A significant bull market may be beginning if this is following an increase of 3600 from a previous low. > 1600        Watch for market tops (followed by reversals) during divergences < -1300       Watch for market bottoms (followed by reversals) during divergences 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 Summation Index 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 Summation Index is useful for detecting major market trends. Positive values indicate money is entering the market. Negative values indicate money is leaving the market. Reversals in direction typically indicate a reversal in the direction of overall prices. 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".