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TW Patron++
Posts: 1,054
Reply with quote  #1 
A review of the McClellan Oscillators (MCO) and Summations (McSum) for some groups of stocks not covered by very many sources.

The NDX climax indicator (CLX) reached +74 Monday, March 24th, which is in the top ten of positive extremes over the past 11+ years, and predictably, led to a price decline over the balance of the week... start of another leg down, or consolidation?

The NDX CLX MCO touched resistance in place for the past 7 months last week and rolled over. The NDX CLX MCO is still in a positive pattern, but will have to hold above the early March lows to maintain it. If this MCO could find support at its zero line in the coming days, it would bode well for the NDX.

The next NDX CLX McSum view is of a longer term nature for the intent of providing reference for its range over the past few years.  This McSum variant is now at its early March high and will likely take of the high if the NDX CLX MCO can remain positive for a couple more days.  Note this indicator is providing an intermediate term divergence with price.

The AYDIS indicator is defined as: AYDIS = CLX - CLXp

CLXp is different than CLX in that its daily volume is first divided by its daily price change from the previous day.  The volume is divided by its price change in pennies, e.g. if the price was up $1.25, its volume would be divided by 125.  So the higher the component's price change, the lower the baseline volume number will be prior to the CLX recipe application. 

Thus higher daily composite CLXp absolute values for an index indicate the overall price changes for the index's components were not large.  Keep in mind, if a component's volume is divided by 10 (price change was ten cents), the volume/price-change result will be much larger if the component price changed by 80 cents.

When CLXp is less than CLX, then AYDIS for the day will be positive, indicating the on-balance index components' accumulation-distribution status is generated by more significant component price changes than if CLXp is greater than CLX, making AYDIS negative.

The NDX AYDIS MCO achieved a very high level last week and has also remained in a positive diverging pattern versus price.

The NDX AYDIS McSum, not surprisingly, is showing very wide gaps in its daily postings, has burned through a couple potential resistance areas, and is bearing in on the zero line, which is the next obvious resistance point.

The Dow CLX MCO is not as strong as its NDX counterpart, currently resting on its zero line.  Note the DOW CLX MCO did not exceed its previous high in its latest foray above zero, and if unable to remain above zero in the coming days, will have built a simple structure above its zero line suggesting the majority of the Dow components were unable to establish a short term CLX accumulation configuration.

The Dow CLX McSum is also a longer term view, and has been unable to build a positive intermediate term divergence with price, suggesting the majority of Dow components are not carving out strong accumulation CLX patterns.  Note however, a long term support line was respected by the Dow CLX McSum.

The Dow AYDIS MCO, unlike the Dow CLX MCO, is maintaining a constructive MCO pattern suggesting the price change related CLXp variant has posted lower magnitudes than CLX, a pattern the bulls will want to see continue. 

The Dow AYDIS McSum has exhibited an intermediate term divergence with price and like the NDX AYDIS McSum, is showing upside acceleration.

A review of the weekly NYSE composite AD MCO has had a difficult time remaining above zero since May of 2007, but has been able to carve out a constructive pattern of higher lows from its August, 2007 flag low. When the weekly composite AD MCO can maintain a posture above zero for more than a week or two, the probability of a sustainable price rally will be much higher.

The weekly NASDAQ MCO is also showing some interest in posting a positive longer term divergence with price, but like its NYSE composite cousin, needs to climb above, and remain above zero before sustained price appreciation can be expected.

The weekly NYSE common stock only AD MCO posted is negative extreme flag in January 2008, unlike the weekly NYSE composite AD MCO which posted it flag in late summer of 2007.  If the common only weekly AD MCO can climb higher in the coming week, this MCO variant could begin building a constructive MCO pattern.

The weekly common AD MCO is getting close to testing the double bottom established in the fall of 2002 and spring of 2003.  Failure to hold above those lows would not bode well for a longer term bottom being currently built. The weekly common stock MCO will have to find a way of getting and staying above zero very soon or this McSum will take out the bear market lows of late 2002/early 2003.

Switch gears back to daily McClellan indicators, let's look at the US common stocks comprising the top 4000 issues as rated by Russell.  I am dividing those 4000 stocks in quartiles, with the following definitions for each tier, or quartile:

1) Tier 1, the Russell 1000 (RUI), the largest caps
2) Tier 2, the largest 1000 cap members of Russell 2000 (RUT)
3) Tier 3, the smallest 1000 cap members of RUT
4) Tier 4, the smallest 1000 cap member of the Russell MicroCap index

First the Tier 1, RUI, AD MCO configuration.  The RUI AD MCO is building a pattern of intermediate term higher lows, but is also struggling with an overhead resistance trend line.

The RUI AD McSum has bounced from an oversold -1000 level, and is carving a potential intermediate term divergence, but is also struggling with overhead resistance... forgot to include a resistance trend line, but the reader can visualize what is going on.

The Tier 2 MCO is putting together a nice higher lows pattern, but needs to take out the +65 area, indicating it might be serious this time in supporting a sustained upward price move.

The Tier 2 AD McSum will need to remain above its most recent low to maintain a potential positive divergence with price. This McSum is also being timid about breaking the pattern of of lower highs, and must achieve such a breakout for supporting a sustained price advance.

The Tier 3 AD MCO is trying to build an aggressive constructive pattern unlike its higher cap Tier 1 and Tier 2 colleagues, and as of Friday, is resting on its zero line.

The Tier 3 AD McSum has built a potential triple bottom in the -1000 zone, but needs to generate a sustained assault on its overhead resistance trend line if this group is to support a serious price advance.

The Tier 4 smallest cap universe (NanoCaps) AD MCO planted a new negative flag in early March and is now trying to build a constructive MCO pattern, but has more work before it can be labeled a successful attempt.

The Tier 4 AD McSum remains deeply oversold, but is valiantly attempting to gain a support foot hold as these depressed levels and has its work cut out to reach a higher high.

Although several breadth and CLX-related MCOs and McSums are building potential bullish divergences, some sentiment related indicators suggested the smallest options traders turned on a dime last week from a very bearish posture two weeks ago and increased their Buy-To-Open (BTO) call positions at an alarming rate last week... despite the SPX dropping off 1%.

Two week ago, the smallest retail equity options traders (1 to 10 contracts per transaction) elevated their BTO put-call ratio to 0.91, the highest BTO PC ratio garnered by this group since April of 2003.  However, last week the small trader BTO PC ratio plunged to 0.65, one of the largest changes in attitude on declining prices over the past 8+ years. 

This eagerness in switching from bearish to bullishness during a declining price week has not been rewarded in the past over the following weeks... and is a definite minus for the near term bullish case if history is any guide. 



TW Member
Posts: 7
Reply with quote  #2 
Excellent analysis as always. I really appreciate your posts.

FWIW, my indicators have turned bullish, but not all of them are confirmed. At this point I am hopeful that the next advance will last longer than previous ones.

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