Saturday, April 23, 2016

Technical Analysis—More on NYSE McClellan Oscillator ($NYMO)

As reported in [1], NYSE McClellan Oscillator ($NYMO) has pulled back nicely on 04/21/2016.  So, now it's nowhere near overbought.



NYSE McClellan Oscillator ($NYMO)


The McClellan Oscillator is a short- to intermediate-term momentum breadth indicator based on Net Advances (advancing issues less declining issues). If it is computed for the NYSE, the oscillator is called $NYMO.  Similarly, $NAMO is computed for the  Nasdaq.  Here we will focus only on $NYMO.

The McClellan Oscillator is the 19-day EMA of Net Advances less the 39-day EMA of Net Advances. As the difference between two moving averages, this oscillator has characteristics similar to MACD. Signals can be derived from bullish/bearish divergences, overbought/oversold conditions and centerline crossovers.

There are two ways of computing McClellan Oscillators:[2]
  • Traditional McClellan Oscillator
    • Uses the raw data for Net Advances
  • Ratio-adjusted McClellan Oscillator
    • Normalizes Net Advances by dividing them by advances plus declines
    • Shows Net Advances relative to the total number of stocks traded
      • Is important because the total number of stocks traded changes over time.
The $NYMO shown in the chart above is ratio-adjusted.

Centerline Crossover


The McClellan Oscillator fluctuates between an level below -100 and above 100.   Based on [1], it interprets the overbought and oversold conditions as:
  • Overbought
    • Readings in the +55 to +65 area generally mean some rest needed
  • Oversold
    • Usually markets bounce at the -50 level.  But, if it fails at this -50, it can fall to the -90+ range
    • Note that $NYMO below -85 is a rare event and could indicate a short term bottom
Short-term buy and sell signals are given when $NYMO crosses above or below its zero (flat) line. The chart shows, for example, the $NYMO bouncing from oversold territory in mid January before crossing over its zero line in late January. Although it has backed off from overbought territory at 100, it bounced back twice -50 level.

As described in [1], $NYMO has pulled back nicely on 04/21/2016, now it's nowhere near overbought.  Note that the McClellan Oscillator is only useful over the short to intermediate term. 

References

  1. Market Recap Apr 21, 2016 (StockTrader.com)
  2. Traditional versus Ratio Adjust McClellan Oscillator $NYMO
  3. MCCLELLAN OSCILLATOR IS STILL POSITIVE (posted 04/18/2009 on stockcharts.com)
  4. Nasdaq McClellan Oscillator ($NAMO
  5. Nasdaq McClellan Summation Index ($NASI)
  6. NYSE McClellan Oscillator ($NYMO)
  7. NYSE Summation Index ($NYSI)

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