McClellan Oscillator

The McClellan oscillator is a good tool to monitor the advancing and declining number of stocks on a daily basis.  Breadth is the lifeblood of the market and gives a lot of information about the conviction of market participants.  Before I get to the current situation, I want to show some charts from the past.

The first chart is from late 2010.  The market rallied quite strongly.  The McClellan oscillator is in the bottom panel.  As you can see in the area circled, the oscillator spent most of the time above the 0 line.  This is normal behavior.

The next chart is from the spring of 2010.  Early on in this rally the oscillator was very strong as it was above the green line (100 threshold).  Toward the end of the rally the oscillator flipped back and forth from positive to negative quite a bit.  This happens very often as the up move gets tired.

Now lets take a look at early 1998.  Once again the oscillator was staying in positive territory almost continuously through the up move.  When the oscillator went negative in April, the market traded sideways to lower like normal.

Here we have a chart of a consolidation before another move up.  This chart from 1999 shows the oscillator spending time in negative territory while price was going sideways.  This looks like a profit taking stage. Price held strong and eventually moved up again.

The next chart is from 1995.  Once again the oscillator was negative during sideways price action and the market blasted off eventually.

Now for the current situation.  Check out the chart from this year.

The first part of the rally from late last year was very strong.  The oscillator spent quite a bit of time above the 100 threshold.  However, something happened in early Feb.  The oscillator went negative and has stayed there almost continuously ever since.  If the market had gone sideways or down it would be understandable.
However, the market went up over 5% during this period.  Looking back to 1965, I cannot find anything even remotely like this.  I believe the major indexes were taken higher by a few big cap/high priced stocks while most of the market was left behind.  This is a common occurrence at both tops and bottoms.  The market thins out in the direction of the trend as the trend exhausts itself.   This is an unprecedented chart pattern.  It will be interesting to see how it plays out.

Bob