Monday, August 2, 2010

Trending higher

As expected we had a pause before resuming the trend higher. The McClellan Oscillator is constructed the same way as a MACD - it is the difference between two moving averages (of the advance-declines). When it becomes "overbought" like it is now, this is not necessarily a sell signal. It is an indication that the shorter timespan average is still increasing faster than the longer timespan average and is pulling it higher. Again the shorter term component, the 10% Index has gone above +500 which indicates the trend remains strongly higher -- even though we could have a short term correction at any time. As the rally matures, the upward trends of the two MCO components tend to merge (the MCO declines) but as long as the 5% and 10% Index values stay positive the rally will continue to coast higher. The previous chart markups are still relevant.

The McClellan Oscillator
Click to enlarge