How McClellan Oscillator moves up on down day

Great question!

The answer lies in the calculation of the Oscillator, which is dependent upon the values of the 10% Trend and 5% Trend of daily breadth. Since the Oscillator is the difference between those two numbers, it matters what they do.

On our Data page, we publish the value for the number of net advancing or declining issues it would take on the next day to achieve a perfectly unchanged Oscillator reading, as well as what it takes to get the Oscillator to zero. The Oscillator Unchanged number is calculated simply as the 10% Trend plus the value of the Oscillator. The mathematical derivation to get down to that simple equation is probably longer than you want to wade through, so I’ll spare you the painful flashbacks to high school algebra.

The Oscillator Unchanged value for Tuesday was -810. We list that as an integer value because advancing and declining stocks are measured in integers, although the actual calculation produces a value of -810.461308. That means that it would have taken 810 net declining issues on Tuesday in order to just keep the Oscillator pinned down at Monday’s oversold level. Since we only saw 534 net declining issues, that means that the Oscillator actually decays upward toward zero.

You can actually do a thumbnail calculation of the tentative Oscillator reading just by knowing the Oscillator Unchanged level and by knowing the current breadth reading. Every 20 points of difference between them equates to 1 point of Oscillator movement. So taking Monday’s numbers as an example, we had an Oscillator reading of -245.7, and the aforementioned Oscillator Unchanged number of -810. Since there were only 534 net declining issues, the difference between -534 and -810 is +276. Dividing +276 by 20 gives us +13.8, so the Oscillator goes up by 13.8 points from -245.7 to -231.9.

Thanks for writing.