McClellan Oscillator Sets New Record

By on August 9, 2011

Yesterday’s market action forced the McClellan Oscillator (breadth momentum indicator) to an all-time low.  As Matt Trivisonno points out, “it is now at -424.59, which is lower than both the TARP Crash low (-407.47), and the Flash Crash low (-414.13).”  He calls this the biggest selling stampede in 45 years.

Trivisonno goes on to warn that prior instances where the McClellan Oscillator hit comparable lows, the market spent “months carving out inverse head-and-shoulder reversal patterns before rallying back.”

SMA Comment: This should serve as a warning to those expecting a quick recovery since investor psychology has been damaged to a degree and investors will be looking to sell into rallies.  Although with many mega-caps trading at roughly the same level they were 11 years ago, economic weakness may be largely be priced into the market now.

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