Nasdaq McClellan Hits Extreme Overbought Territory
By
Rennie on Monday, December 8th, 2008 at 9:30 pm
The Nasdaq McClellan Oscillator typically oscillates between +150 (market overbought) and -150 (market oversold) territory (see long-term chart). During particularly strong advances, the Nasdaq McClellan can approach and even exceed +200, which represents extreme territory as far as this indicator is concerned. Historically, such high readings have led to a selloff in the Nasdaq over the next week as buying pressure fades and sellers gain the upper hand. This just occurred as of Monday’s close. While the sample size is small, the Nasdaq’s consistently weak performance is noteworthy…
Nasdaq McClellan Oscillator closes over +190
12/08/08 Mcc +228… Nasdaq ??? one week later
11/04/08 Mcc +224… Nasdaq -11.1% one week later
04/05/04 Mcc +196… Nasdaq -2.4% one week later
11/01/02 Mcc +196… Nasdaq -1.0% one week later
08/22/02 Mcc +194… Nasdaq -8.3% one week later
10/11/01 Mcc +205… Nasdaq -4.3% one week later
04/18/01 Mcc +233… Nasdaq -0.9% one week later
01/03/01 Mcc +197… Nasdaq -4.5% one week later
06/02/00 Mcc +224… Nasdaq +0.1% one week later
09/23/98 Mcc +238… Nasdaq -3.5% one week later
05/05/97 Mcc +214… Nasdaq -0.9% one week later
12/18/87 Mcc +210… Nasdaq -1.3% one week later
I’d also note that the semiconductor index significantly underperformed the Nasdaq. While the NDX finished up 4% Monday, the SOX gained less than 2%. As I noted last Tuesday, when the NDX doubles the percentage gain for the SOX, it’s generally a negative indication for the short-term. In 18 out of the last 21 instances since 2000, the NDX closed at a lower level two sessions later…
NDX & SOX +0.5% or more & NDX Doubles SOX Gain
12/08/08… Nasdaq ??? two days later
12/02/08… Nasdaq -0.2% two days later
09/11/08… Nasdaq -3.8% two days later
07/25/08… Nasdaq -0.1% two days later
07/08/08… Nasdaq -1.7% two days later
10/05/07… Nasdaq +1.0% two days later (*)
08/24/07… Nasdaq -3.2% two days later
02/27/06… Nasdaq -0.1% two days later
04/25/05… Nasdaq -0.9% two days later
10/18/04… Nasdaq -0.3% two days later
07/27/04… Nasdaq +0.5% two days later
12/01/03… Nasdaq -1.9% two days later
09/18/03… Nasdaq -2.4% two days later
03/25/03… Nasdaq -0.4% two days later
04/08/02… Nasdaq -2.1% two days later
05/02/01… Nasdaq -2.0% two days later
05/01/01… Nasdaq -2.2% two days later
03/27/01… Nasdaq -9.9% two days later
01/23/01… Nasdaq -4.9% two days later
08/24/00… Nasdaq +0.1% two days later
06/30/00… Nasdaq -3.0% two days later
05/05/00… Nasdaq -6.6% two days later
Neither setup has a large enough sample size to be considered for inclusion on the board, but they do tend to reinforce the negative setups already in effect.
From a longer-term perspective, it seems there’s still far too much discussion about market bottoms – have we bottomed, and if not when will we bottom. I personally think that’s the wrong question to be asking, and is one indication we’re most likely not near some sort of major bottom. When that occurs, no one will be asking about a bottom because there will be no interest. That was the case in 2003, the last time we saw a major bottom. And yet there were a number of clues in 2003 that the bottom was for real…
Up/Down Volume… The 200-day moving average of advancing volume minus declining volume surged into positive territory in May of 2003 after spending two years in negative territory, reflecting a sudden surge of real buying power at work.
Sentiment… In June 2003, the Market Vane survey of commodity trading advisors turned convincingly bullish for the first time in years. This is a group you want to follow, not fade.
Institutional Participation… By mid-2003, our cumulative TICKscore had taken out previous major highs, signaling a real shift in institutional sentiment.
Smart Money… By early 2003, the last hour indicator had completely retraced the 2000 decline, meaning this long-term lead indicator was no longer bearish.
Speculative Participation… In late 2002/early 2003, the 20-day moving average of the NASDAQ/NYSE Volume Ratio hit the 1.0 level on a number of occasions, indicating a sharp drop in NASDAQ volume relative to big board volume. Speculators were completely blown out, and it’s no coincidence that this marked the ultimate bottom for stocks. The market had shifted out of weak hands and into strong hands.
As for the present? Not so much.
Nasdaq McClellan Hits Extreme Overbought Territory
By Rennie on Monday, December 8th, 2008 at 9:30 pmThe Nasdaq McClellan Oscillator typically oscillates between +150 (market overbought) and -150 (market oversold) territory (see long-term chart). During particularly strong advances, the Nasdaq McClellan can approach and even exceed +200, which represents extreme territory as far as this indicator is concerned. Historically, such high readings have led to a selloff in the Nasdaq over the next week as buying pressure fades and sellers gain the upper hand. This just occurred as of Monday’s close. While the sample size is small, the Nasdaq’s consistently weak performance is noteworthy…
Nasdaq McClellan Oscillator closes over +190
12/08/08 Mcc +228… Nasdaq ??? one week later
11/04/08 Mcc +224… Nasdaq -11.1% one week later
04/05/04 Mcc +196… Nasdaq -2.4% one week later
11/01/02 Mcc +196… Nasdaq -1.0% one week later
08/22/02 Mcc +194… Nasdaq -8.3% one week later
10/11/01 Mcc +205… Nasdaq -4.3% one week later
04/18/01 Mcc +233… Nasdaq -0.9% one week later
01/03/01 Mcc +197… Nasdaq -4.5% one week later
06/02/00 Mcc +224… Nasdaq +0.1% one week later
09/23/98 Mcc +238… Nasdaq -3.5% one week later
05/05/97 Mcc +214… Nasdaq -0.9% one week later
12/18/87 Mcc +210… Nasdaq -1.3% one week later
I’d also note that the semiconductor index significantly underperformed the Nasdaq. While the NDX finished up 4% Monday, the SOX gained less than 2%. As I noted last Tuesday, when the NDX doubles the percentage gain for the SOX, it’s generally a negative indication for the short-term. In 18 out of the last 21 instances since 2000, the NDX closed at a lower level two sessions later…
NDX & SOX +0.5% or more & NDX Doubles SOX Gain
12/08/08… Nasdaq ??? two days later
12/02/08… Nasdaq -0.2% two days later
09/11/08… Nasdaq -3.8% two days later
07/25/08… Nasdaq -0.1% two days later
07/08/08… Nasdaq -1.7% two days later
10/05/07… Nasdaq +1.0% two days later (*)
08/24/07… Nasdaq -3.2% two days later
02/27/06… Nasdaq -0.1% two days later
04/25/05… Nasdaq -0.9% two days later
10/18/04… Nasdaq -0.3% two days later
07/27/04… Nasdaq +0.5% two days later
12/01/03… Nasdaq -1.9% two days later
09/18/03… Nasdaq -2.4% two days later
03/25/03… Nasdaq -0.4% two days later
04/08/02… Nasdaq -2.1% two days later
05/02/01… Nasdaq -2.0% two days later
05/01/01… Nasdaq -2.2% two days later
03/27/01… Nasdaq -9.9% two days later
01/23/01… Nasdaq -4.9% two days later
08/24/00… Nasdaq +0.1% two days later
06/30/00… Nasdaq -3.0% two days later
05/05/00… Nasdaq -6.6% two days later
Neither setup has a large enough sample size to be considered for inclusion on the board, but they do tend to reinforce the negative setups already in effect.
From a longer-term perspective, it seems there’s still far too much discussion about market bottoms – have we bottomed, and if not when will we bottom. I personally think that’s the wrong question to be asking, and is one indication we’re most likely not near some sort of major bottom. When that occurs, no one will be asking about a bottom because there will be no interest. That was the case in 2003, the last time we saw a major bottom. And yet there were a number of clues in 2003 that the bottom was for real…
Up/Down Volume… The 200-day moving average of advancing volume minus declining volume surged into positive territory in May of 2003 after spending two years in negative territory, reflecting a sudden surge of real buying power at work.
Sentiment… In June 2003, the Market Vane survey of commodity trading advisors turned convincingly bullish for the first time in years. This is a group you want to follow, not fade.
Institutional Participation… By mid-2003, our cumulative TICKscore had taken out previous major highs, signaling a real shift in institutional sentiment.
Smart Money… By early 2003, the last hour indicator had completely retraced the 2000 decline, meaning this long-term lead indicator was no longer bearish.
Speculative Participation… In late 2002/early 2003, the 20-day moving average of the NASDAQ/NYSE Volume Ratio hit the 1.0 level on a number of occasions, indicating a sharp drop in NASDAQ volume relative to big board volume. Speculators were completely blown out, and it’s no coincidence that this marked the ultimate bottom for stocks. The market had shifted out of weak hands and into strong hands.
As for the present? Not so much.