Tuesday, July 10, 2007

Good News from the McClellan Summation Index

The last time I talked about the McClellan Summation Index, I used a weekly chart to demonstrate how this indicator can provide some advance notice of market tops and bottoms.

Today my focus is more on the Williams %R momentum indicator that I have included with the daily chart of the McClellan Summation Index (which StockCharts.com codes as the $NYSI or NYSE Summation Index.) In this chart, which spans from 2003 to the present, I use 30 bars for the Williams %R indicator instead of the more common 14 bars in order to minimize some of the choppiness and provide more reliable signals.

In terms of a strong intermediate term bullish signals, what I look for in the chart below is for the Williams %R to cross the -50 center line, which is usually does shortly after moving above the -80 level. While I will generally wait for the official confirmation at the -50 level, you can usually anticipate that event when the %R rises above -80. With yesterday’s close of -77, I would expect that we would get another bullish signal from the McClellan Summation Index – Williams %R (30) very soon.

For those interested in checking the reliability of this indicator, you can eyeball the chart to determine that this center line crossover approach gave 9 highly profitable bullish readings, 1 neutral to unprofitable reading (May ’04), and 2 readings (February ’05 and February ’07) that were unprofitable – all of which one assumes a minimum holding period of 1-2 months.


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