McClellan indicators sound cautionary note, and DecisionPoint's Carl Swenlin sees trendline and moving average resistance for S&P 500

The breadth data depicted by the McClellan Oscillator and Summation Index clue us in to the strength of market movements and even turning points. Back on March 7, I pointed out that the lows were forming with notable divergence in the Oscillator, and indeed the first leg of the rally was quite strong. Then the Oscillator documented how the rally starting losing momentum. The negative divergence in the Oscillator and even the longer-focused Summation Index are now adding to the cautionary signals on this market. Many technicians pay attention to the McClellan data, including Carl Swenlin of DecisionPoint.com. Yesterday, Carl also came out with one of his free posts at that site, Important Resistance Encountered (DecisionPoint.com, 6/5/09). His message and charts focus on moving average and trendline resistance in this area for the S&P 500. You should read his full message because he isn't recommending selling or going short, but is signaling watchfulness and caution; and he reviews his full set of portfolio and recommended positioning in a variety of asset classes (based on his mechanical model methods). I do consider this a good resource for swing traders.

Stockcharts.com is one way to track the McClellan indicators, and a nicely formatted set of these McClellan charts is provided courtesy of DecisionPoint.com via Stockcharts, as shown below - but note that I've added some markings to help you see how the Oscillator (faster moving) and Summation Index (slower moving longer-term indicator) are acting. In the case of the Oscillator, that includes a triangular or wedging pattern around the zero line - the Oscillator which provides shorter-term signals makes those signals normally by going above and below the zero line, which looks like whipsawing back and forth recently. Divergence is also something to consider and there's definitely that, negative divergence in the Oscillator and the Summation Index. Doesn't tell us with any certainty whether any pullback bearishly tests or breaks the March lows, or simply forms the right shoulder of a bullish H&S. Since the Summation Index signals for the longer-term, watching how it acts in a decline will help gauge its significance.

So you know, DecisionPoint does have additional McClellan data charts for additional indices - the Nasdaq 100, the S&P 500, the Dow, and more; and even have historical McClellan charts going all the way back to 1926.

In a related note, Carl Swenlin's free posts at DecisionPoint.com also include this one, Gold Lacks Intrinsic Strength (DecisionPoint, 5/29/09). I like his analysis there because it screens for gold's own strength by factoring out just the effects of dollar weakness per se. It's important to note because, for example, gold made new all-time highs in other currencies while it was only a swing high to 1007.70 in the dollar - we must remember that gold actually trades against many currencies. (This fact about the 1007.70 along with other characteristics of that wave strongly influence my thinking that it may have been just a "B" wave and there's still a "C" wave down to perhaps 550.) Specifically, Carl uses the "GolDollar Index" invented by Tom McClellan (yes, that McClellan!) of http://www.mcoscillator.com/. Apparently Tom McClellan had just written a piece about how that index was reflecting very low internal strength in gold, even though it's been approaching its all-time highs.

Why am I mentioning this? Well, not only because Mr. McClellan has something to do with it again ... but if gold weakens and the dollar strengthens, this can be bearish for equities too. Equity investors generally should keep an eye on the relationships now with the dollar, other currencies (like the euro), and gold. And of course, my trading buddies who follow the gold market closely!