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Monday, November 26, 2012

Odd move in MCO

I was looking at the McClellan oscillator (MCO) and I just could not remember seeing it move from one extreme to another so fast and so straight.  Check the chart.

The the extreme negative reading at the low is marked by the blue horizontal line at the bottom.  The current extreme high reading (marked by the blue line at the top) in the MCO came in only 5 days and is straight up.  This is a very rare move.  Lets look at the two closest cases.

The first case was the crash in Aug. of 2011.  Here is the chart.

The MCO was more negative then the current case since it started below the lower blue line.  The first peak came five days later just like the current case.  It was a little lower then the current peak, but it started out quite a bit lower.  There was one down day in that move, unlike the current move.  SPX went back to test the low again, and made a slightly lower low in Oct. 

The next closest match was in the 9/11/2001 crash.  Here is the chart.

This move also had one down day on the way up.  It took nine days to get the MCO up to the upper blue line which marks the current reading.  This was a true V bottom here.  However, this low was eventually broken in 2002. 

Both the 2001 and 2011 down moves were much bigger crashes then the current sell off.  Both of those had big VIX spikes over 40.  Both also had extreme climatic type volume into the low.  The current situation does not really compare in any of these things.  Those instances both looked like they should have made a significant low of some kind to me.  It was obvious at the time.  The recent low, not so much.  It just does not look like a setup for a significant low to me.

The move to decimalization in stocks in the spring of 2001 affected breadth indicators like the MCO.  That makes comparisons to time periods before that invalid.  Very often history can provide some guidelines in possible outcomes or maybe suggest some odds on a certain outcome.  In this case, I don't see that history tells us much of anything about what might happen next.  This looks like a situation unlike any other in the last 11 years of MCO data that is comparable to today.  I am very curious to see how this plays out now.  Does it V bottom out of here and keep going up.  Maybe it retests the low and rallies.  How about a retest of the low that fails and we get another mini crash.  I guess we will have to see how the market handles a down day when it comes.


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