NASDAQ McClellan Oscillator went above 60: what does this mean short and long term?

Last week the McClellan Oscillator for the NASDAQ (NAMO) reached over 60. See chart below. This doesn’t happen too often as it’s now only the 3rd time in the past year. Each prior two times the market continued to rally for several more weeks to months before a larger more meaningful correction occurred.

McClellan Oscillator for the NASDAQ over the past year

Since 2 data points is not a lot to go by, let’s take a look at how the market did since its important low made in March 2009: see chart below. The vertical lines show each time the NAMO reached >60: 24 in total, on average 3 times a year. Thus a reasonable rare signal indeed.

NAMO over the past 8 years

Out of those 24 occasions the market continued to rally for weeks to months before a more meaningful correction occurred in 21, arguable 20 times: blue lines. The other 3 to 4 times (red lines) the market made a lower low first before staging its real rally. Those few occasions were therefore all during corrections.

Currently the market is not correcting, but moving strongly up making higher highs and higher lows. 

We can therefore conclude that odds favor at a 5 to 1 minimum the market will move higher over the next weeks to months. In fact, those odds may well be closer to 100% when comparing truly apples to apples. But, since past performance is not a guarantee for future results we’ll stick with 5:1. That’s still pretty darn good 🙂



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