McClellan Chart In Focus: Quiet McClellan Oscillator is a Tell For a Top – By Tom McClellan

Chart In Focus

Quietness is a sign of trader complacency, and thus of a topping condition for prices.  Quietness manifests itself in a variety of ways, and can be measured also in a bunch of different ways.  Most often, chartists will use Average True Range (ATR) to look at what prices are doing.

This week’s chart was featured in a recent issue of our Daily Edition, calling attention to the condition which now appears to be starting to matter.  It borrows from the idea of ATR, but applies it to the McClellan A-D Oscillator instead of prices.  Since the Oscillator is an end-of-day indicator, we don’t have to worry about the intraday range as we would for prices.  Through some experimentation, I have found that 15 trading days makes for a useful lookback period. 

The highest Oscillator reading over the past 15 trading days was a +55 on July 12, 2019, a reading which is about to drop out of the 15-day lookback.  The lowest before August 1 was the -64 reading on July 22, 2019.  That produced a low for this indicator of only 119.  It has jumped up a little bit with the Oscillator move to -92 on August 1, but we still have the low reading on the books.

That low reading was telling us that traders were feeling too complacent to do much work moving prices anywhere, a condition which also resulted in quiet Oscillator readings.  Most of the time, such very low readings for this 15-day range indicator are associated with meaningful price tops, but not always. 

There was one example back in September 2017, when we saw a really low reading for this indicator had no effect on the progress of the uptrend.  Chalk that up to the notion that nothing works all the time. 

We are now seeing stock prices starting to drop, as called for by the low indicator reading.  It took a while to “work”, and the FOMC helped when they disappointed with only a quarter-point rate cut.  The small range of Oscillator values over the prior 3 weeks did not “cause” the price drop we are seeing now.  It just revealed a ripe condition which set up the events we are now seeing unfold.

Tom McClellan
Editor, The McClellan Market Report

Related Charts

Jun 23, 2017

Narrow Range for McClellan Oscillator
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Another Narrow Range for McClellan Oscillator
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About the author

Sherman and Marian's son Tom McClellan has done extensive analytical spreadsheet development for the stock and commodities markets, including the synthesizing of the four-year Presidential Cycle Pattern. He has fine tuned the rules for interrelationships between financial markets to provide leading indications for important market and economic data. Tom is a graduate of the U.S. Military Academy at West Point where he studied aerospace engineering, and he served as an Army helicopter pilot for 11 years. He began his own study of market technical analysis while still in the Army, and discovered ways to expand the use of his parents' indicators to forecast future market turning points. Tom views the movements of prices in the financial market through the eyes of an engineer, which allows him to focus on what the data really say rather than interpreting events according to the same "conventional wisdom" used by other analysts. In 1993, he left the Army to join his father in pursuing a new career doing this type of analysis. Tom and Sherman spent the next 2 years refining their analysis techniques and laying groundwork. In April 1995 they launched their newsletter, The McClellan Market Report, an 8 page report covering the stock, bond, and gold markets, which is published twice a month. They utilize the unique indicators they have developed to present their view of the market's structure as well as their forecasts for future trend direction and the timing of turning points. A Daily Edition was added in February 1998 to give subscribers daily updates on their indicators and also provide market position indications for stocks, bonds and gold. Their subscribers range from individual investors to professional fund managers. Tom serves as editor of both publications, and runs the newsletter business from its location in Lakewood, WA.