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.