The McClellan Terminator

Take a look at this chart of the McClellan Oscillator (click to enlarge):

During the rally that peaked on January 6th, the MacOS hit an all-time high – point “A” on the chart. Think about that for a second. An all-time high level of bullishness when the economy was in a death spiral. Think about how wrong that was. How insanely, incredibly foolish those bulls were.

Now they are being punished. What do you think would be a just punishment? I propose that these bulls be punished with an all-time low on the MacOS. As far as I can tell from my data, it looks like the October 10th low is the record so far (“E”). And today we closed a bit above (“D”).

So, one more down day, and justice may be served upon the Larry Kudlow’s and Dennis Kneale’s of the world.

On the chart, I have drawn a Fibonacci price extension. I connected the peak at “A” to the low at “B” to the peak at “C” (light blue line). The software then draws the Fibonacci projections using those points. The point (ha,ha) of this is to get an idea of how far down the current wave will extend. In many cases, the wave from “C” to “D” will be equal to the wave from “A” to “B”.

The purple line marked “100%” would be a “harmonic” extension of the original wave down, and is a potential target.

The red and green dashed lines are the overbought and oversold levels for the MacOS. We have been oversold for five days now. During the plunge down to the October 10th low, we stayed oversold for six days. So, another down day is certainly possible.

Tuesday could be a capitulation day. A big plunge down, soaring volume and then a snap back. Where might the market bounce? I suspect that it is at the level where a lot of the big value fund mangers will be willing to catch another falling knife. What do they have in mind? 700? 650? 600?

I don’t know, but I should have something further to say on the subject later when I am done studying all of my charts.

18 Responses to “The McClellan Terminator”

  1. Larry says:

    I repeat. You create a lot of value Matt. VIX at 53. We have apathy.

  2. Sherry says:

    Matt-
    The market will hit a bottom when the CNBC
    folks stop calling it the bottom

  3. admin says:

    Thanks Larry.

  4. admin says:

    Sherry,

    CNBC doesn’t always get it wrong. In fact, on the morning of October 10th (if I’m remembering correctly), anchor Bill Griffith pointed out that we were probably seeing a capitulation low forming. He totally nailed it.

    Matt

  5. K says:

    SFCG Co., a Tokyo-based lender whose creditors include Citigroup Inc., collapsed in the biggest bankruptcy by a publicly traded Japanese company in more than a year, listing 338 billion yen ($3.6 billion) in liabilities.

    http://www.bloomberg.com/apps/news?pid=20601087&sid=avP37JtL5E.U&refer=home

    am sure you guys hear about it

  6. Hank says:

    From Yahoo’s finance page:
    Major stock market indexes fall to 1997 levels- AP

    Nothing on Yahoo’s front page?

    I covered all my shorts and sold all my PUTs today. If we crash I will miss the boat, if we snap back I will be ready :)

    Good luck all.

  7. Kevin says:

    Bkx was actually positive most of the day on a Dow 250 pt down day, a positive divergence.

  8. admin says:

    Kevin,

    Most of the day doesn’t count. It’s the close that counts because that tells you exactly what the bulls were comfortable holding overnight. Nobody wanted to add new bank positions today and hold them overnight.

    Matt

  9. K says:

    Phil? you there? did you mention gold and silver looked bad today?

    http://benbittrolff.blogspot.com/2009/02/short-gold-and-silver.html

  10. Jagmohan Swain says:

    “Now they are being punished. What do you think would be a just punishment? I propose that these bulls be punished with an all-time low on the MacOS.”.ROFL.

  11. K says:

    hey back off MacOs LMAO

  12. Hank says:

    Checkout Capital One (COF) from 1/9/09 to now. How many times did it break the 10d SMA? A grand total of ZERO times. Probably where the stock will be by Spring.
    They are now offering triple rewards on purchases, no desperation here. ;)

  13. Hank says:

    http://biz.yahoo.com/ap/090223/merrill_lynch_bonuses.html

    The court also ruled to keep Thain’s scheduled testimony Tuesday on the subject confidential until at least March 13 at the request of Bank of America, Levander said. The judge will hold a hearing then to determine if details about individual bonuses should remain confidential, he added.

    And BAC was up today?

  14. phil says:

    k…iwas mentioning dsi was at 95%bulls for gold and silver ..high risk market..who is left to buy??….how do you like my less scary posts??

  15. K says:

    like i mentioned on monday’s trading Phil lol

    “K Says:
    February 23rd, 2009 at 6:06 pm
    Phil, like I said its fine if you want to caps the members name it is fine. the arrows maybe hit me lol.

    hope no hard feelings. was just a suggestion”

  16. K says:

    basically:
    PHIL >>>>>> the market is crashing (seemed a bit scary)
    PHIL the market is crashing (is a bit different lol)

    I’m just K being a Soup Nazi not letting you eat your >>> soup for one year.! lol

  17. steve says:

    Here are the Mac Os Lows Oct 9th -420, Nov 20th -318,Feb 23rd -368.
    We may be there Feb 24th is a Fib day and a New Moon.