iBankCoin
The first hit is always on the house.
Joined Aug 2, 2009
1,847 Blog Posts

Mind the McClellan

Over the years I’ve used a particular indicator to help me time buy points in mindless trends like this. I’m not a big fan of technical indicators, but this one is based on market breadth, which makes it much more relevant and useful than indicators based on a rear view mirror’s perspective on price. This indicator I am referring to is the McClellan Oscillator.

I use stockcharts to get a daily read on this into market weakness. I use this tool specifically for oversold readings in markets trending up, and overbought readings in markets trending down. That’s all. It’s an EOD indicator, which means it will only report a value at the market close each day. However, I’ve rigged up a way to get intraday readings, and today the indicator is pushing -70.

Let me explain why this matters.

NYMO0529

All readings below -80 are considered oversold. I’ve only got 3 years of signals here to display, but align these signals with a chart of the $SPX.

NYMO20529

In terms of the McClellan, we are not yet oversold. But here is how this usually pans out. We’ve likely seen the session lows for the day. At the same time, I doubt we see any real bullish reversal here. However, if we gap down tomorrow, and remain above 1634 in the $SPX, I am going to be a big buyer into that set-up. Those days where the market is down and the McClellan is oversold, there will usually be a divergence that takes place. Usually, it will be in Copper, the Russell, or the VIX. This means market down, but one of those three instruments is providing another signal. In every “correction” like this, that is the playbook in almost every event. Go back and look. Days where the market was down, McClellan below -80, either the Russell was up/flat, the VIX was lower than a prior high, or Copper was green that day.

Let’s watch this unfold in the next few days. If you see it coming, you’ll know where to initiate real risk.

OA

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11 comments

  1. elizamae

    YES.

    It takes balls and experience to buy into the blood…but this is exactly the kind of thing I’m looking for.

    +1,000,000 for figuring out how to calculate intraday McClellan readings.

    Awesome work.

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  2. Raul3

    Yes, very nice work here. Thanks,

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  3. SDeuce

    Care to share how one goes about acquiring an intraday reading?

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  4. Derek

    Thanks!
    Could u elaborate a bit more on the divergence? I went back and checked but these things didn’t seem to happen that often. I went back 3 years and usually they just moved in tandem, sp up, copper up, russell up and vix down, or the other way around.

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    • Option Addict

      I have written evidence that proves otherwise.

      It would be a day where stocks are down, copper is up.

      SPX down, Russell flat.

      SPX down, VIX down.

      Etc…etc…

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  5. fly jr

    you call this a correction? wow. you perma bulls think a down day of 1% is a correction – you have a lot to learn

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  6. Kareem Abdul Jewbar
    Kareem Abdul Jewbar

    Alright, you’ve won me over a bit.

    If I were to subscribe/pay for your service, what is your preferred way I go about it.

    I’m asking out of laziness. I’m betting you said so in a past post, I just don’t want to fish for it.

    This will be my first subscription to a blogger. Please be gentle.

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  7. jbran

    Thanks for your work and this post. Breadth is key, a behind the curtain analysis.

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