McClellan Oscillator’s Oversold Signal | Stock Market Bottom For Stocks?

The McClellan Oscillator gives an “oversold” or “bottoming” signal for stock markets. This “oversold” signal is usually a reliable “long” or “buy” signal for stock markets.

Take a look at this chart of the McClellan Oscillator and notice when it went below the (minus) -80 level:

McClellan Oscillator

Now take a look at what happened to the S&P 500 (US Markets) each time the McClellan Oscillator gave an “oversold” below minus 80 reading:

S&P 500

Each time the McClellan Oscillator gave a reading below minus 80, the stock market (or S&P 500) bottomed or was at near a bottom. This signal was very pronounced in November 2011, May/June 2012 and November 2012, after which the S&P 500 started a major rally. In fact, this was a highly reliable “buy” signal for stocks.

The same signal on the McClellan Oscillator also would have worked for the European or UK markets as well. Take a look at this chart of the FTSE UK 100:

FTSE UK 100

Again, we can see that the FTSE put in a hard bottom in November 2011, May/June 2012 and November 2012.

Last week we had another minus -80 level reading on the McClellan. Does this mean we are at or near a potential bottom in stocks? It seems incredible to believe that this strong rally in stocks has not yet had at least a 10% correction. But as we traders say, “Markets can stay irrational longer than you can stay solvent”.

Now watch this video which explains this in a bit more detail and as to where we could be heading next:

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Alessio Rastani is a stock market trader at www.leadingtrader.com

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