Market Data Questions

The Gods Must be Crazy (Amplitudes Changed)

I have followed the [McClellan] Oscillator and Sherm's genius since Gene Morgan & KWHY 22 started back in the 70's...... The [McClellan]Oscillator has always been my GOD in the stock market. I grew up with +300 being the top, then it would wind its way down to zero, and -300 was always the bottom. The summation could always be get out at +3000..... full speed ahead at -3000. The average weeks of being plus or minus to me was about 6 wks for the Oscillator.

What the hell is going on nowadays? The Oscillator has these wild swings plus and minus.....and the Summation Index is 4500? What the hey? Is there ANY brief advice Tom or Sherm can give? Why is the old way of prediction, and methods of use gone and now it's totally a crap shoot?

Any words of wisdom to one who adores your foresight? I've always been able to AMAZE my friends at my calls, now I have lost for the first time that I can remember. I get in when it positive and out when negative, but recently it has totaly gone against everything I've ever learned. HELP!

There is not one simple answer to your questions, since there a variety of complex and interrelated forces at work to bring about the phenomenon you are describing.

Back in the 1970s, the amplitudes on the “normal” Summation Index were smaller than they are now because there were fewer issues traded then. A larger number of issues brings about larger magnitudes of up and down moves unless one adjusts for the change. Such an adjustment can be mental or computational, but unless one adjusts one’s understanding for the changes over the years then there will be interpretational problems.

We still calculate the “normal” version, but we also use a “Ratio Adjusted Summation Index (RASI)” which divides the daily A-D difference by Advances plus Declines (A+D), and then multiplies by 1000. Using the RASI, we can better compare magnitudes of moves over big chunks of history. We can also see when the RASI is signaling or refusing to confirm further strength.

A RASI reading of +500 promises us a higher price high before the move is done. We almost never see a RASI peak above +500 that coincides with the final price high. If a rally unfolds and the RASI fails to make it to +500, then we like to say that the rally “failed to achieve escape velocity”, and a lower price low is to be expected as that rally breaks down.

It is important to remember that it takes enormously strong breadth numbers to achieve a very high Summation Index (or RASI) level. The Summation Index acts as an accelerometer for the A-D Line, so it takes a steep A-D Line advance to create a high acceleration reading. The same is true for the Oscillator, which is the second derivative of A-D acceleration. Strong breadth numbers are a sign of very strong liquidity, in that they are saying there is so much money out there that even the most undeserving issues can still manage to go up. Such liquidity does not disappear quickly, so the message of a very high Summation Index is that liquidity has been strong. It still can disappear at some point, and the transition from high Summation Index to low Summation Index readings can involve a choppy sideways period.

But when we have high Summation Index readings and an intact uptrend, the proper interpretation is that this is a very strong market and we should not let go of the reins.

We discuss these interpretational topics in our twice monthly McClellan Market Report newsletter, and recent issues point out that the current time period (2007) is one when we should be expecting such strength to appear. The 3rd year of a presidential term is the strongest period for the market out of the entire 4-year cycle. Since you have a long-time interest in these indicators, perhaps you might wish to consider subscribing. You can read more about our publications at:

http://www.mcoscillator.com/market_reports/