If we get some follow through in the next few days, the McClellan Oscillator is suggesting we may be making a major reversal in the indexes. So far we have a test of the recent price lows with market breadth, as measured by the advance-decline oscillators, is NOT confirming the low.
This, accompanied by the recent high reading on both the MCO and 10% Index is an event which has not occurred for over a year and suggests to me that the markets are indeed going higher.
The McClellan Oscillator for Wed 1-21-09 Click to enlarge
At 12:42 the advance decline statistics are noticeably negative, as follows
adv 482 dec 3204 A-D diff -2722 <== the 10% -365.71 <== still above -500 the 5% -134.87 the MCO -230.85 <== In the area where normally there is a bounce/reversal.
Further, the indexes are down now 6 days running, only in October (1-10) was there a longer negative run of 8 days down.
All indicators are not confirming the retest of the previous low zones.
I've been watching the TICK and the 20 bar average on the 65 minute chart has made new 4 month lows, lower than October or November. This leads me to believe that the markets are seeing either the start of a new leg down OR the finishing up of the current one. I believe the latter is the case.
If I'm seeing this correctly, we should reverse later in the day or tomorrow in the AM.
Original comment was on January 15, 2009 at 12:50:06 on WollieWorld
This is an updated chart in my previous post MCO hits new highs with the last two days added on. So far the MCO has come right down to my trendlines and made a small daily change indicating a bit more volatility in the next few days. Up or down? That's always the question.
The McClellan Oscillator for Tuesday 1-13-09 Click to enlarge
Happy New Year. 2009 looks like it will be a bullish year for the US stock markets.
The trading on January 2nd was about as good as one could ask for, in particular the market breadth was extraordinarily strong, pushing the McClellan Oscillator to new highs. This is highly significant, the previous MCO reading above 300 occurred with weak advance-decline index values. This indicates that the markets were just working off an oversold condition in a bear trend.
The current +345 MCO reading is occurring with both the advance-decline index values in positive territory and with the 10% index in a bullish out-of-limit condition at +622. This indicates that any pullback will be followed by a retest of the current highs. I view this reading as impulsive and therefore bullish for the overall market.
The one caveat is what happens on the next strong pullback. In order to verify a trend change we need to see a higher low. Obviously the markets do not rise in a straight line and we can expect a strong correction at some point. Over the last 18 months, every market correction has seen the 10% Index fall below the -500 level which indicated to me that the downward trend was not finished. This is still true. So before we can get strongly bullish we need to see the 10% component hold the line above -500 in the next major correction.
Further, the markets are a bit extended here and we can expect a correction at any time over the next few days. I do no believe the correction will be the start of another leg down, at least not yet. At this point it appears that the markets will continue to trend higher into the latter part of 2009. Because public sentiment is so bearish, corrections will be sharp and scary.
The S&P 500 65min Cycles Click to expand
The S&P 500 Daily with measures and cycles Click to expand
The McClellan Oscillator for 1/1/09 Click to expand
The McClellan Oscillator 1998 to 2009 Click to expand
Percentage of stocks above their 50 and 200 day averages. Click to expand
Percentage of stocks above their 50 and 200 day averages. 2002-2009 Click to expand
The Bullish Percent Index for the 50 day average is getting up into the resistance zone. This doesn't mean we are going to have a correction but we could see a bit of a pause. Since the 200 day Bullish Percent is in the toilet the 50 day can stay above 50% for an extended period of time.
NYSE Short Interest Click to expand
The NYSE short interest has been remarkably high but is contracting as we speak.
In thin holiday trading the McClellan Oscillator made a sharp move higher, I would interpret this as bullish. While we can expect a pullback within a few days, the current expansion in market breadth is a positive indication and suggests the current rally will continue for a few more weeks at a minimum.
The McClellan Oscillator for 12/31/2008 Click to enlarge
So far today we are seeing a remarkable development. If the market breadth stays in the current range with advances exceeding declines by about 1600 it will make the MCO (McClellan Oscillator) print a new high for the move. This is confirming the price behavior and is similar to seeing the MACD go to a higher high during a rally, i.e it's now impulsive and not just an oversold bounce. This is potentially much more bullish than I initially expected and may be signaling that a major market reversal is in progress. As I have noted before, this is an unusual market and we need to see further confirmation over the next few weeks.
adv 2358 dec 660 A-D diff 1698 <== if this stays above 1590 then the MCO > 320 which was the old high the 10% 586.14 the 5% 259.51 the MCO 326.63 <== currently at a new high for the year
Update at 3:05 PM Friday Jan 2.
adv 2913 dec 651 A-D diff 2162 the 10% 632.54 the 5% 282.71 the MCO 349.83
If these numbers hold we are in a new bull market.
To be safe we need to watch what happens in the next major correction which takes the MCO down to or below the -100 level. If the %5 index can stay above -500, we will have confirmation for a reversal of one of the nastiest bear markets in history. We're not there yet but close.
Update at 4 PM Friday Jan 2.
Confirmation at the close, odds are that we are in a new bull market
adv 2959 dec 697 A-D diff 2162 the 10% 632.54 <== Above +500 = Impulsivly Bullish the 5% 282.71 the MCO 349.83 <== NEW HIGH