The McClellan summation index, along with the McClellan oscillator, was developed in 1969 by Sherman McClellan, who earned his degrees in business administration and economics, and Marian McClellan, his mathematician wife.
When the summation index was developed in 1969, it was developed with the index moving between 0 and +2000 with +1000 being the centre line at a neutral state. But because the number of assets being traded on the NYSE has expanded since then, any overbought or oversold thresholds have expanded beyond those tolerances, with 0 being the centre or neutral line.
Instead of just focusing on the price of assets, the summation index focuses on the number of assets in a market that is rising in price and the number of assets in a market that is falling in prices. Check out tradingview’s advanced charting tools
The McClellan summation index indicator produces a running total by adding up all the daily values of advancing and declining stocks that are measured by the McClellan oscillator. While the oscillator is used for short-term to medium-term timing, the summation index is used for medium-term to long-term timing.McClellan Summation Index | Indicator Series Click To Tweet
Bullish And Bearish Markets
When there are a small number of stocks making giant leaps in gains, this can give the impression that the overall market is healthy. In reality, it is a sign that a bullish market is weakening because rising prices are being driven by a small number of stocks.
The same is true when a small number of stocks are making large declines giving the impression that the market is in a bearish condition. However, because it’s just a small amount of stocks driving prices down, this can indicate the bearish condition of the market will reverse soon.
When the signal is above 0, and this happens when the McClellan oscillator is positive for an extended period of time, this indicates a bullish market and when the signal goes below 0, as long as the oscillator was at a negative for an extended period of time, this indicates a bearish market.
The McClellan summation index can also identify upturns, downturns, and divergences.
Subscribe to tradingview.com for free to get great ideas from other traders.