A Possible Market Bottom?
October 6, 2008 – 9:07 pm
Chart courtesy of DecisionPoint:
The chart above features the McClellan Oscillator, which is the difference between the 5% and 10% Indexes, which are a 19-EMA and 39-EMA of daily advances minus declines. It reflects the short-term strength and direction of market liquidity. As you can see, the previous market ‘bottoms’ or swing points over the course of the past 3 years (DOW) have caused the McClellan Oscillator to give a reading somewhere in the neighborhood of -100. While the current reading is certainly in that neighborhood, it isn’t indicative that we have in fact bottomed out — it may well in fact continue to decline. Though, as history as demonstrated, this also very well may be an inflection point for a current, short term, bottom and we may perhaps see a move to the upside. A confirming up move would further be validated with a reading of the Summation Index that crosses above the 0 line (subsequent chart below on above image). The Summation Index is the cumulative total of the daily McClellan Oscillator values. Both of these indicators move within a trading range and also help us determine the overbought/oversold condition of the market. Time will tell if in fact this chart pattern proves to be a swing point, otherwise we may keep declining in the near term. Stay tuned for the next update!
Definitions of each indicator courtesy of DecisionPoint.
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