The Intermediate-Term Breadth Momentum Oscillator (ITBM) was developed to add a new perspective to interpretation of the McClellan Oscillator. We use the Ratio-Adjusted version of the McClellan Oscillator.

The McClellan Oscillator is primarily an expression of short-term breadth movement, which is calculated by subtracting a 5% exponential average of daily advances minus declines divided by the total daily advances and declines from a 10% exponential average. Through movement above and below the Zero Line the McClellan Oscillator gives us an idea of which way money is moving -- in or out of the market. However, movement below the Zero Line has much less serious implications when the components of the McClellan Oscillator, the 5% and 10% exponential averages remain in positive territory.

For example, since the beginning of 1995 through February 1996 the McOsi has been unusually difficult to decipher because it has failed to remain above or below the Zero Line for any length of time, giving the impression of an undecided market. Also, considering the extraordinary strength of the market during that period, one would have thought that the McClellan Oscillator would have mostly remained above the Zero Line. I found this to be very confusing, so I set out to discover what the problem was.

The answer, as I said, was in the movement of the McClellan Oscillator components. For most of that period both the 5% and 10% exponential averages remained well above the Zero Line, indicating that internal strength relating to breadth was exceptionally high, not weak as the McClellan Oscillator might have implied.

I decided to develop an indicator that would incorporate both the McClellan Oscillator and its components, so that the condition of the components would be expressed in the resulting graph. The ITBM Oscillator is the result of this effort.

To calculate the ITBM add the daily McClellan Oscillator (Ratio-Adjusted) to the daily 10% exponential average (Ratio-Adjusted), then calculate a 20 day exponential average (0.10 exponent) of the result. It gives a much better perspective of breadth than the McOsi alone and lets us know when negative McClellan Oscillator readings should be taken seriously.

The ITBM is a barometer of breadth. The absolute value indicates how overbought/oversold the market is. Direction is most important because it indicates whether the market is getting stronger (rising) or weaker (falling). The best condition is for the ITBM to be rising above its 10-EMA, and the worst is falling below its 10-EMA. It is extremely negative if the ITBM tops below its 10-EMA and below the zero line.

The daily ITBM reading is reported on our Daily Market/Signal Summary Report and is included in our Daily Charts.