The world of market indicators can feel like alphabet soup, but every so often, a tool emerges that earns its place on the charts of savvy investors. The McClellan Oscillator is one such instrument—a market breadth indicator that’s been helping traders and investors interpret the mood of markets for over 50 years. In 2025, with volatility still a fixture on the ASX, understanding the McClellan Oscillator could give you an invaluable edge.
What Is the McClellan Oscillator?
Developed by Sherman and Marian McClellan in the late 1960s, the McClellan Oscillator measures the difference between two exponential moving averages (EMAs) of market advances and declines. In simple terms, it tracks how many stocks are rising versus falling, then applies a smoothing formula to help spot momentum shifts.
- Calculation: The oscillator subtracts a 39-day EMA from a 19-day EMA of daily net advances (number of advancing stocks minus declining stocks).
- Interpretation: Positive values indicate broad market strength, while negative values suggest weakness.
- Application: Used for identifying market turning points, divergences, and potential buy or sell signals.
While the tool originated in the US, it’s equally applicable to the ASX—especially now, as Australian equities see heightened participation from retail investors and algorithmic traders alike.
Reading the McClellan Oscillator: Signals That Matter in 2025
With 2025 bringing both renewed optimism and persistent headwinds to the Australian market, the McClellan Oscillator’s signals are more relevant than ever. Here’s how to put its readings to work:
- Zero Line Crosses: When the oscillator crosses above zero, it’s a bullish sign—market breadth is improving. A move below zero signals increasing weakness.
- Overbought/Oversold Levels: Extreme readings (often above +100 or below -100 for the ASX) suggest the market may be stretched and due for a reversal.
- Divergences: If the index is making new highs but the oscillator isn’t, it can be a red flag that momentum is fading—potentially forewarning a correction.
Example (2025): In March 2025, the S&P/ASX 200 staged a rapid rally. However, the McClellan Oscillator peaked well before the index, flashing bearish divergence. Within weeks, the rally fizzled—validating the oscillator’s early warning.
Why Breadth Matters: Beyond Price Charts
Traditional technical analysis often focuses on price alone, but market breadth tells a deeper story. In 2025, with the ASX increasingly influenced by tech and resource giants, it’s possible for the index to rise while most stocks lag behind. The McClellan Oscillator cuts through this noise by:
- Spotting Hidden Weakness: It reveals when fewer stocks are driving gains, exposing vulnerable market conditions.
- Confirming Trends: Sustained positive readings during rallies indicate healthy participation, while quick reversals can signal bull traps.
- Timing Entries and Exits: When combined with other indicators (like volume or sentiment measures), the oscillator helps refine timing for trades and portfolio shifts.
In 2025, ASX traders are increasingly overlaying breadth indicators with macroeconomic news—such as RBA rate changes and global commodity cycles—to make more robust decisions.
Implementing the McClellan Oscillator in Your Strategy
Getting started is straightforward, thanks to modern charting platforms. Most brokers and financial software covering the ASX now offer market breadth overlays, including the McClellan Oscillator. Here’s how to use it effectively:
- Add to Breadth Data: Look for the oscillator on ASX indices or your preferred sector index.
- Combine With Macro News: Watch for divergences around key policy updates—such as RBA cash rate announcements or budget releases.
- Use With Risk Management: The oscillator is a guide, not a guarantee. Combine signals with stop-losses and position sizing to manage risk.
Remember, breadth tools like the McClellan Oscillator are best used as part of a holistic toolkit—never in isolation.
The Bottom Line
As Australia’s share market navigates a complex 2025, tools like the McClellan Oscillator can help investors see beneath the surface and anticipate turning points before they hit the headlines. Whether you’re a short-term trader or a long-term investor, understanding market breadth is a powerful way to gain an edge in a crowded field.
