The McClellan oscillator measures the momentum of market breadth by calculating the difference between the 40- and 20-day exponential moving averages of daily advancing issues minus declining issues on the New York Stock Exchange (NYSE).
The idea behind the indicator is that more stocks will advance than decline in bull markets and vice-versa in bear markets. Generally, markets are considered oversold when the oscillator is below -100, and overbought when it is above +100.
The McClellan oscillator is not a stand-alone indicator. It measures the trend strength of advancing and declining issues, and not necessarily market turns. Leadership in a handful of stocks has characterized many bull markets, defying the premise that the broad market must advance for stock indexes to hit new highs.