It is market breadth technical indicator used by financial analysts to evaluate the difference between advancing and declining stocks. Mcclellan Oscillator define the performance of whole market instead of single asset. In 1969, Mcclellan Oscillator was developed by Marian McClellan and Sherman for use with NASDAQ or New York Stock Exchange.
Mcclellan Oscillator is calculated by subtracting the values of advancing stock from values of declining stocks to obtain the net advances and declines of overall market. The two simple moving averages are taken, one for 39 days period and second for 19 days period. The Mcclellan Oscillator forms by subtracting the 39 days moving average from 19 days moving average.
When 19 day moving average is above the 39 day moving average, it indicate that stock is advancing. When 19 day moving average is below the 39 day moving average, it indicate that stock is declining. Through this, trader identify overall momentum of the market. A buy signal is generated when indicator move into positive numbers while sell signal is generated when indicator move into negative numbers.
However Mcclellan Oscillator produces lot of signals such as crossovers, divergence and breadth thursts with some frequency but not all these move in expected direction. Some of them are prone to generating false signals. Therefore successful traders used Mcclellan Oscillator in conjunction with other technical indicators and price action analysis.