Legendary Technical Analyst Calls The Top

Some analysts focus on fundamental analysis – they study a company’s financials, management, and competitive edge to determine whether the stock will go up. Others are expert technical analysts. They examine historical patterns in individual assets, asset classes, and the market as a whole and use those patterns to forecast future behavior.

Tom McClellan and his father Sherman have perfected a set of technical analysis methods that have been proven valid again and again. So what are Tom McClellan’s predictions about the stock market now? Using the McClellan Oscillator and Summation Index as his tool, it appears he sees a stock market top forming. But is he right?

Who Is Tom McClellan?

Sherman McClellan was fascinated by the inner workings of the stock market, and he launched a career in the financial industry as soon as he was out of college. However, he quickly found himself frustrated by traditional methods of fundamental analysis and the limited technical analysis methods available to him.

While the existing methods offered some information, he felt they didn’t give a comprehensive explanation for market movements. His wife, mathematician Marian McClellan, agreed. One of her most famous quotes is this:

Everyone times the market. Some people buy when they have money, and sell when they need money, while others use methods that are more sophisticated.

In 1969, Sherman and Marian McClellan introduced the McClellan Oscillator and Summation Index – a particularly impressive accomplishment in a time before computers were available to do the complex calculations. Sherman and Marian immediately attracted the interest of investors, and they were invited to participate in national television programs to share their insights.

The McClellan’s son, Tom, followed in his parent’s footsteps, and once he could apply the power of technology to his calculations, he was able to advance their methods.

Among other projects, he is known for his development of analytical spreadsheets for commodities and stocks, and he synthesized the four-year Presidential Cycle Pattern.

More importantly, he was able to identify weak spots in the existing rules for interrelationships between financial markets. He fine-tuned the rules to increase the accuracy of predictions based on those interrelationships.

Tom and Sherman McClellan began publishing The McClellan Market Report in April of 1995, and they later added another newsletter, the Daily Edition, in 1998.

Their observations are often published in the highly respected Barron’s Magazine, and they have been recognized in Timer Digest’s list of top ten intermediate and long-term timers.

Today, McClellan Market Report and Daily Edition subscribers include everyone from individual retail investors to professional financial advisors. Tom McClellan is the editor of both newsletters.

How Do You Use The McClellan Oscillator?

The McClellan Oscillator is essentially a formula that identifies indicators of a rise or fall in pricing. It works with a group of stocks or an entire exchange because it measures the breadth of the group.

Specifically, it uses data on the number of stocks that advanced vs. the number that declined in a given period, along with other factors related to market sentiment, to forecast price movement.

For the most part, when the Oscillator reading is above zero, the index is rising. When it is below zero, the index is falling. However, the most interesting reading occurs when the Oscillator doesn’t match the direction of the index, also known as divergence.

If the Oscillator is above zero but prices are going down, it is likely that prices are about to turn around. The converse is also generally true – if the Oscillator is below zero but prices are going up, the Oscillator reading suggests they are about to drop.

That’s valuable information for investors – it’s as close to a reliable prediction as possible, though there are still no guarantees. So, what guidance is Tom McClellan giving to his readers now?

What Is Tom McClellan Seeing In The Market Now?

McClellan Market Report and Daily Edition subscribers get an in-depth look at current and projected market conditions, but even those who don’t get the newsletters are able to benefit from Tom McClellan’s insight. McClellan is a regular guest on financial news programs, and he shares his thoughts via social media, including Twitter.

In a recent tweet, McClellan noted:

August gold futures is almost down to the ~1920 downside objective given by the recent double top structure. Measure the height of the double top above the midpoint low, and apply that distance downward. But remember, objective does not equal guarantee. pic.twitter.com/ePeWjunFNJ

— Tom McClellan (@McClellanOsc) June 22, 2023

In another tweet, he pointed out:

Another good comparison is between the spot VIX Index and its futures contract prices. We are seeing a really high spread now, which is a sign of a top for prices. https://t.co/nSevP1pGPI pic.twitter.com/nk24kDnaCH

— Tom McClellan (@McClellanOsc) June 22, 2023

In other words, comparing the spot VIX Index (CBOE Volatility Index) and its futures contract prices offers an interesting perspective. At the moment, there is a high spread, which suggests that prices have reached their top.

Remember, the VIX index is also known as the “fear index” – or sometimes the “fear and greed index.” It measures volatility, which is the speed with which prices are changing. From this, analysts estimate the market’s expectations for short-term price changes in the S&P 500 Index (SPX).

History has shown that when the index is high, investor anxiety is high – and stock prices generally fall. When the index is low, investor anxiety is low, and stock prices generally rise. Right now, the VIX is quite low, which supports McClennan’s remarks about prices reaching their top.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.