McClellan Summation Index
This is a clear indicator that the bears are unable to push the market down with any significance before another rally ensues. The length of the moving average depends on your trading or investing style and timeframe. First, the Summation Index generally favors the bulls when positive and the bears when negative.
Remember, broad market moves have very little to do with technical analysis or fundamentals. People are looking to buy or sell based on the raw market emotions of fear and greed. Once those two elements are prominent in any market, it's no longer about what makes logical or technical sense. No more panic, no more doubts. You can see time and time again how the NYSE approaches the 1, to 1, range and then gets slapped in the face. However, the pullbacks appear to stop anywhere from to -1, Which is double the range of where things can start to shift relative to the range for market tops.
So, now that we know the Summation Index is not a magic bullet, we now need to determine a means to validate trading signals. The reason I am going to use trend lines to illustrate how to validate the summation index signals is because trend lines are probably the one indicator every technician uses in their trading toolkit.
Some traders use oscillators, others Elliott Wave, but at some point or another we all draw some sort of trend line on our charts. Let's start picking apart why the above peaks in the NYSE Summation Index were areas where longs should have begun taking a more defensive posture with their trading.
What makes the third touch point unique is that the NYSE did not touch the resistance line. Based on the slope of the resistance line and the current value of the Summation Index at So, since this is a market breadth indicator, as a trend continues in a primary direction it's harder to determine the turning points for counter trends. Now in plain English, as the market has continued to rally over the last two years - , the troughs of the NYSE Summation Index have continued to rise as the market extends the bull market.
You have no trend line as confirmation for these bounces, because the market is trending so strongly. Now, for all you folks that draw a million lines on a chart, good luck with that. I use the Wyckoff method for drawing trend lines which prescribes that you only draw parallel or horizontal channels. So, I you will not see lines within lines on any of my charts. So, to quickly recap, when the market is trending strongly, you will want to look for a confirmation of the NYSE Composite hitting a resistance line and the NYSE Summation Index peaking in the 1, to 1, range.
Here's some simple steps you can take before asking on the forum. Notice the line, find the method which triggered it, highlight it and hit F1 to open the QuickRef tool with more details about possible errors. I can't get the data set that is in instructions. The Market Sentiment data provider is an extension.
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The account information you provide will never be shared. After button click, retrieve your Verification Code from your email. Are you currently using a version of Wealth-Lab software? Companies that fail are ultimately removed from the index, but their negative effect on these breadth indicators remains.
This negative bias does not affect short-term or medium-term movements, but it is clearly visible on long-term charts. Notice how the Nasdaq moved higher from until The NY Composite also moved higher from until Like many momentum oscillators , the Summation Index provides a bullish or bearish bias when it is above or below its center line zero.
This is logical because the glass is half full when positive and half empty when negative. The Summation Index will be positive when the McClellan Oscillator has been largely positive for an extended period of time. In fact, it usually takes several positive readings to push the Summation Index into positive territory and keep it in positive territory. This is why the Summation Index is better suited for medium-term or long-term analysis. The red highlights show when the indicator moved into negative territory and remained negative.
Sustained negative values from June to December coincided with an extended downtrend in the NY Composite. Conversely, extended positive values from April to May coincided with an extended uptrend in the NY Composite. There will be whipsaws or periods when zero line crossovers do not last long. Chartists can also tweak the positive and negative values required for a bullish or bearish bias. The Summation Index captured the long downtrend from August until April and the long uptrend from April until July and counting.
Notice how the area between and acted as resistance in and blue arrows. Similarly, the to area acted as support in June A moving average can be applied to the Summation Index to identify upturns and downturns. The length of the moving average depends on your trading or investing style and timeframe. A short moving average 5-days will generate quicker signals, but there will be more whipsaws.
A longer moving average days will lag a bit and there will be fewer whipsaws. It is the eternal tradeoff in technical analysis. More speed means more whipsaws.
Less speed reduces whipsaws at the expense of later entries. Even with this medium-term moving average, there are still plenty of signals and turns. Some signals were great, some were not and some produced whipsaws.