#SPX #McClellanOscillator divergence finds bottom in SPXDid some work on breath indicators tonight and interesting how well the McClellan oscillator worked with divergence to find the bottom in the recent SPX sell off.
From Investopedia:
What Is the McClellan Oscillator?
The McClellan Oscillator is a market breadth indicator that is based on the difference between the number of advancing and declining issues on a stock exchange, such as the New York Stock Exchange (NYSE) or NASDAQ.
The indicator is used to show strong shifts in sentiment in the indexes, called breadth thrusts. It also helps in analyzing the strength of an index trend via divergence or confirmation.
What Does the McClellan Oscillator Tell You?
The McClellan Oscillator is an indicator based on market breadth which technical analysts can use in conjunction with other technical tools to determine the overall state of the stock market and assess the strength of its current trend.
Since the indicator is based on all the stocks in an exchange, it is compared to the price movements of indexes that reflect that exchange, or compared to major indexes such as the S&P 500.
Positive and negative values indicate whether more stocks, on average, are advancing or declining. The indicator is positive when the 19-day EMA is above the 39-day EMA, and negative when the 19-day EMA is below the 39-day EMA.
McClellan, S. (1989). Patterns for Profit: The McClellan Oscillator and Summation Index. Marian Publishing.
A positive and rising indicator suggests that stocks on the exchange are being accumulated. A negative and falling indicator signals that stocks are being sold. Typically such action confirms the current trend in the index.
Crossovers from positive to negative, or vice versa, may signal the trend has changed in the index or exchange being tracked. When the indicator makes a large move, typically of 100 points or more, from negative to positive territory, that is called a breadth thrust. It means a large number of stocks moved up after a bearish move. Since the stock market tends to rise over time, this a positive signal and may indicate that a bottom in the index is in and prices are heading higher overall.
When index prices and the indicator are moving in different directions, then the current index trend may lack strength. Bullish divergence occurs when the oscillator is rising while the index is falling. This indicates the index could head higher soon since more stocks are starting to advance.
Bearish divergence is when the index is rising and the indicator is falling. This means fewer stocks are keeping the advance going and prices may start to head lower.
Mcclellanoscillator
Distribution and then breakout?Using the NYA and the mcclellan Oscillator, it seems that we could get some consolidation before the next move higher or lower.
MASSIVE BOTTOM in the SP500?I was not looking for a bottom in the SP500, but for Relative Strength in Gold with the relative Strength line from Trader Lion´s Indicator, on the weekly timeframe.
Yet I noticed that the last peak in Relative Strength in Gold was on march 16th 2020. This made me curious so I went back and looked at all RS Peaks from 2008 till now, and they all coincided with bottoms in the SP500 to the very day.
Some of those bottoms were absolutely massive buying opportunities: 2/3/09, 6/28/10, 2/1/16, 3/16/20, I also counted the peak on 12/17/18, despite a missing peak signal.
Two Peak Signals were wrong or early, for example we had a signal on 3/9/20 (7 days before the real signal and real bottom), and one signal on June 6th 2022, so 7 days before the signal we got right now, on 6/13/22.
I also want to point out, that on every other occation, we didnt have massive inflation and a tightening into worsening economic conditions.
So I wanted to see more confirmation, for that purpose I´ve used the McClellan Summation Index, and the McClellan Oscillator.
The MO shows a nice bullish divergence, and the MSI shows an abysmall market breadth, often coinciding with bottoms in the market.
Do with this information, whatever your confirmation bias makes you want to do, but stay safe and manage risk!
This is not financial advice and I am more often wrong than right.
Pesonally, I will buy some Calls and reduce my short positions.
Market Internals in troubleThe 2 most important internals we can measure are sentiment and breadth .
Sentiment is going higher, but breadth is starting to show cracks.
The are many breadth measures, including: McClellan Oscillator, advancers vs decliners, equal weights.
Both had been holding up very well; however, the breadth is starting to show downtrends, suggesting we are due for a correction.
I have been following a chart from an analyst at Schwab, which shows the correlation between 2009-2010 SPX chart VS the 2020-2021 SPX chart. And it has been following it CLOSELY. This chart also suggests we are due for a 8% correction (drawn in the chart).
Let me know if you want the article, it is free on the Insight Schwab website.
Always rely on your stop-exits. Volatility is growing higher.
SPX - You Really Think $6 Trillion Can Save Us?Three simple reasons why markets are still broken and why I lean towards the much higher probability of another move down despite FED stimulus:
1) Garbage prospects for equity earnings - earnings were terrible a long time before COVID-19 hit and this is way beyond a virus now:
-Earnings were terrible way before COVID-19
-Q4 2019 was the worst fall in EPS. growth since the 2008 Financial Crisis
-Unless governments miraculously open up the entire economy overnight, we now have the Q1 2020 earnings season coming up - hmmm...
2) $6 trillion of FED stimulus is highly disproportionate to the approx $70 trillion of value lost/being eroded:
-We'll start with more than $20 trillion of value that has been destroyed in global stocks
-Adding to it losses in all other assets (real-estate, credit, fixed income, etc.) this number is at least double equity losses: so another $40 trillion
-Adding to this: at least a $10 trillion global dollar shortage crisis (dollar shortage, forward dollars swaps and various other dollar liabilities)
- Total value destruction = 20T equities + 40T all other asset classes + 10T dollar shortage problems = approximately 70T of totally capital markets value destruction.
- You really think $6 trillion of FED stimulus and highly indebted governments can fix this tremendous mess?
3) The McClellan Oscillator has moved sharply from the most oversold levels to the most overbought levels
