Saturday, July 2, 2011

What Happens to SPY When NYSE McClellan Oscillator is above 80?



The market has had a great run the last five days. Some would consider us short term overbought. One way to measure this is through the McClellan Oscillator.  It hit 89 on Friday, an extreme level. I wanted to test the short term returns of the SPY when this indicator hits 80.


Buy SPY when NYSE McClellan Oscillator is > 80; sell 'n'days later. $10,000 per trade; 1993 to present.
Net Profit
# Trades
# of winners
% of Winners
Max. Trade % DD
Avg % P/L
W. Avg. Profit
L. Avg. Loss
Profit Factor
Payoff Ratio
1
      (647.45)
16
5
31.25
-4.20
-0.40
    137.81
   (121.50)
0.52
1.13
2
   (1,488.59)
15
7
46.67
-9.51
-1.03
       89.58
   (264.45)
0.30
0.34
3
      (945.92)
12
4
33.33
-9.51
-0.80
    170.27
   (203.38)
0.42
0.84
4
      (667.25)
12
5
41.67
-9.51
-0.55
    172.05
   (218.21)
0.56
0.79
5
      (402.90)
12
8
66.67
-10.60
-0.31
    123.43
   (347.58)
0.71
0.36
6
      (805.53)
11
7
63.64
-14.53
-0.67
    110.96
   (395.57)
0.49
0.28
7
        (58.23)
11
7
63.64
-14.53
-0.02
    172.67
   (316.73)
0.95
0.55
8
      (491.37)
11
7
63.64
-14.53
-0.42
    196.21
   (466.21)
0.74
0.42
9
   (1,204.91)
10
5
50
-14.88
-1.22
    232.80
   (473.79)
0.49
0.49
10
   (1,109.48)
10
6
60
-14.88
-1.10
    198.38
   (574.94)
0.52
0.35
11
   (1,642.58)
10
5
50
-18.83
-1.70
    240.97
   (569.49)
0.42
0.42
12
   (2,532.35)
10
5
50
-24.86
-2.67
    272.31
   (778.78)
0.35
0.35
13
   (1,710.27)
9
4
44.44
-24.86
-1.93
    387.29
   (651.89)
0.48
0.59
14
   (1,439.37)
9
4
44.44
-24.86
-1.62
    379.69
   (591.63)
0.51
0.64
15
   (1,349.83)
9
4
44.44
-24.86
-1.54
    331.62
   (535.26)
0.50
0.62
16
      (910.64)
9
4
44.44
-24.86
-0.99
    336.85
   (451.60)
0.60
0.75
17
      (231.45)
9
5
55.56
-24.86
-0.15
    368.32
   (518.26)
0.89
0.71
18
   (1,249.87)
9
5
55.56
-24.86
-1.30
    391.61
   (801.98)
0.61
0.49
19
        251.40
8
5
62.5
-24.86
0.34
    424.09
   (623.02)
1.13
0.68
20
        160.85
8
4
50
-24.86
0.24
    474.43
   (434.22)
1.09
1.09

It hasn't happened all that much and it's not the most bullish thing in the world (on a short term basis).  A pullback or consolidation should be in order over the next week or two.  How the market responds to it will be very important.  It is interesting: when there is a strong market breadth thrust (as indicated by NYMO), it usually leads to overbought conditions.  Strong breadth may signal a new bull move, but the market often takes a breather right after it.  The last time it happened was 7/26/10; look at the SPY chart for that period and you'll know what I mean. That's all I have on the subject right now.

Good trading out there.

5 comments:

Mattrix said...

Good post, Chris.

--@mattrixDOTinfo

Chris said...

thanks Matt!

Anonymous said...

Sooooo, what do these results say about the opposite; shorting SPY when Mc is > 80? Looks to be profitable up to n=-18. Or am I misreading the data?

Chris said...

You're reading it correct. MC > 80 is short term bearish. It would be one factor to consider when shorting

Ripe Trade said...

Chris, nice post and great blog. I did a similar study a while back to confirm your results http://ripetrade.blogspot.com/2008/11/mcclellan-oscilator-overbought.html

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