McClellan Summation Index

McClellan Summation Index

A version of the McClellan Oscillator adapted for long-term trends. It is an indicator of future market movements related to the number of advancing or declining securities on the NYSE as opposed to the average price change. The McClellan Summation Index is calculated by taking a 19-day exponential moving average (EMA) of the net number of securities that are advancing and subtracting a 39-day EMA of the same thing (which is the calculation of the McClellan Oscillator) and adding that to the previous trading day's Summation Index. That is, the McClellan Summation Index is expressed as:

Oscillator = (19-day EMA of securities advancing - securities declining) - (39-day EMA of securities advancing - securities declining) + Previous day's McClellan Summation Index.

The importance of the McClellan Summation Index comes from the fact that price averages may be driven by only a few securities. That is, a few securities may be making large gains while the rest of the securities on the NYSE are posting losses, or vice versa. A price average, then, may not reflect the true conditions of the market. The McClellan Summation Index attempts to control for this.
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There are still plenty of reasons to be concerned about this rally -- chiefly seasonal weakness in July, a rollover in the McClellan Summation Index and some negative divergences with the June 6 top -- but until there's a real change in trend, it's unwise to bet too heavily on the short side just yet.