Complex McClellan Oscillator Structure Below Zero

One of the fun magic tricks which the McClellan Oscillator does is that it gives us a message about who is in charge, the bulls or the bears.  It does this with the formation of "complex" or "simple" structures on either side of the zero neutral level.

My parents, Sherman and Marian McClellan, introduced the McClellan Oscillator to the world back in 1970, with their booklet Patterns For Profit.  The title was very intentional.  The patterns of behavior in the Oscillator tell us far more than just the numerical levels. 

A "complex" Oscillator structure is one that involves chopping up and down on one side of the zero line, and without a crossing of that zero line.  A complex structure conveys a message that the side it forms on is the side that is in charge.

A "simple" Oscillator structure just sees the Oscillator cross zero and then turn around, without building any complexity.  It says that side is not in charge.

Right now, we are seeing a complex structure below the zero line, which says that the bears are in charge.  The bulls could still mount a very normal counterattack, perhaps even taking the Oscillator back up above zero.  But for the moment the message is that the bears are in charge.

This message persists until one of two things happens.  One way to overturn the message of a complex structure is for there to be a divergence versus prices.  A few examples are shown in the chart above.  Divergences can be hard to read, though, and they can take time to finally matter.

Another way to overturn the message of a complex structure is for there to be a crossing of zero, then a crossing back to the complex side which is just a simple structure.  That subsequent simple structure negates the prior message of the complex structure which preceded it.

In the case of the current complex structure below zero, and its message of bearish control, it is also possible for the market to just decide to ignore that message.  It is after all just a message, not a guarantee.  Confirmation of such an outcome would be if there were suddenly a complex structure forming above zero.

The preliminary breadth data for June 11 are strong enough to take the Oscillator back up above zero, which again is a normal counterattack against the statement that the bears are in charge.  That preliminary positive reading is not yet shown in the chart.  If the Oscillator then crosses back down below zero, and leaves a simple structure above zero, that would serve as confirmation that the bulls could not do much with their counterattack, and the bears get to resume control.