McClellan Summation Index

The McClellan Summation Index, also known as the McClellan Oscillator’s cumulative version, is a technical analysis tool used to analyze market breadth and identify the overall direction of a market. Developed by Sherman and Marian McClellan.

it provides a longer-term perspective compared to the traditional McClellan Oscillator. The McClellan Summation Index smooths out short-term fluctuations and offers insights into market trends and potential reversals.

The McClellan Summation Index is calculated by summing the values of the McClellan Oscillator over a specific period. The index is cumulative and builds upon the previous values, which enables the identification of sustained market trends.

The calculation of McClellan Summation Breadth Index involves the following steps:

• Calculate the daily McClellan Oscillator values using the same methodology as described for the McClellan Oscillator.
• Start with an initial value for the McClellan Summation Index, typically set at zero.
• For each trading day, add the McClellan Oscillator value to the previous day’s McClellan Summation Index value.

Let us see an example,

The above is a daily candlestick chart of Nifty50 from 1^st Jan 2022 to 13^th June 2023. Below is the McClellan Summation Index in green line with a red dotted horizontal line separating positive and negative values.

The interpretation of McClellan Summation Index is as same as the McClellan Oscillator, but the only difference is, it is lot smoother and here the trend sustains for a longer period because it takes in to account the view of intermediate to long term trend whereas with McClellan Oscillator the view is about the short to intermediate trend.

Positive Values:

• A positive McClellan Summation Index suggests an overall bullish market sentiment. It indicates that advances have been stronger than declines over the specified period.
• Higher positive values indicate stronger bullish momentum and sustained buying pressure.

Negative Values:

• A negative McClellan Summation Index indicates an overall bearish market sentiment. It suggests that declines have been stronger than advances over the specified period.
• Lower negative values indicate stronger bearish momentum and sustained selling pressure.

Trend Reversals:

Changes in the direction of the McClellan Summation Index can signal potential trend reversals in the market. The index crossing above zero from negative values may indicate a shift from a bearish to a bullish trend, while crossing below zero from positive values may indicate a shift from a bullish to a bearish trend.

Divergences:

Divergences between the McClellan Summation Index and the price of an underlying asset can provide additional insights. Bullish divergence occurs when the index makes higher lows while prices make lower lows, indicating underlying strength. Bearish divergence occurs when the index makes lower highs while prices make higher highs, suggesting underlying weakness.