McClellan Summation Index

McClellan Summation Index or MSI is a market breadth indicator and is the long-term adjusted version of McClellan Oscillator. It favors intermediate to long-term traders and indicates the strength/weakness of existing trend and predicts trend reversals. McClellan summation index is derived by adding today’s McClellan oscillator value to previous days summation index.

MSI (today) = MSI (yesterday) + McClellan Oscillator (today)

One new method of MSI calculation is also practiced by many; in this, instead of adding today’s McClellan oscillator value, today’s summation value is directly calculated from 10% and 5% trend values. The modified formula is,

MSI (today) = 1000 – (9 x 10% trend) + (19 x 5% trend)

The normal range of McClellan summation index range from 2000 to 0; and 1000 is considered as neutral. Movements below zero are considered bearish and above 2000 are considered bullish. Oversold condition is identified when the index reach -1200 (some traders wait for -1500); once -1000 is reached, prices are said to be at market bottom and there is a strong change of market reversal as in the form of a new bullish trend. The historical extremes of MIS are close to 4000 and -2000.

McClellan summation index is better suited to trade broad markets and major trends on a long-term basis as a major trend last about 2 years. The indicator offer better results with used with other long-term indicators and patterns.

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