Gold Long Term Charts & McClellan Oscillator

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McClellan Oscillator(MOSC):

Here I calculate and display the McClellan Oscillator and Summation Index for my newly created New Gold Index. This is a popular index that tracks the breadth of the underlying stocks. It's premise is that if the price is rising into new highs then the stocks that comprise the index should be climbing with the price. However, if the price makes a new high and the number of stocks rising is commensurate then the McClellan Oscillator will drop before the prices fall. This shows weakness because fewer of the stocks making up the index are rising along with the price. Each day I need to know how many stocks out of the 26 stocks in the New Gold Index were greater than yesterday's close before I can calculate this indicator. For those of you that wish to know how to calculate the McClellan Oscillator, just follow the steps detailed below.

In creating the McClellan Oscillator, I stuck to the traditional definition of using the 5% and 10% trend factor. Described below are the steps I used to calculate the MOSC:

1. Calculate the daily net advancing - declining issues (total 18) Subtract Advancing from Declining.

2. Calculate 5% exponential moving average.

a. (today's price x 5%)

b. (yesterday's moving average x 95%)

c. 5%EMA = (today's price x 5%) + (yesterday's moving average x 95%)

3. Calculate 10% exponential moving average.

a. (today's price x 10%)

b. (yesterday's moving average x 90%)

c. 10%EMA = (today's price x 10%) + (yesterday's moving average x 90%)

4. MOSC = 10%EMA- 5%EMA

Note: 10% is actually the faster moving or in other words uses a shorter time frame. For example, the 10% = 19 days and 5%=39days

5. Summation Index: cumulative sum of daily MOSC.

First, what's interesting to note is that the McClellan Oscillator is being applied to a small number of stocks. This index only has 19 stocks so its range is small unlike the McClellan Oscillator values for the NYSE or NASDAQ which is in the thousands. Also notice that when the price move from one side of the oscillator to the other it tends to correlate with a trend change. This is a visual anomally and it was not statistically determined to be the optimum placement of the two graphs. Please note that any future presentation of this chart may not maintain the same scaling. There is no set relationship in the presentation of this indicator and that this visual correlation may not exist in future presentations of this chart.

The Summation Index is simply the sum of the daily values for the McClellan Oscillator. As you can see this sector has been weak for years and is now showing a bottoming of these 19 stocks. The scale doesn't represent anything but a cummulative value of net daily changes in the number of stocks that are positive each day. As the chart depicts, the net daily figure was negative for several years and has only recently turned due to the net daily figure being positive more often than in the past.

Below is a monthly chart comparing the monthly London Gold Fixing (AM and PM price are averaged for the month) to the closing monthly price of the XAU index. Basically, here a chart that shows you how gold companies' prices move relative to the price of gold. This chart was constructed to see if the following statement is true: "Gold prices lead gold stock prices.". As you can see, starting with the left side of the chart that Gold lead stock prices up and then stock prices lead Gold down. Then the two rose and fell together and now near the right side of the chart Gold is rising faster than stock prices. So from this chart while both are linked together, one does not forecast or lead the other's consistently. The general statement regarding Gold leading stock prices isn't valid.

Below is a monthly chart of the Philadelphia exchange's XAU index along with the total volume for the month. The volume represents the sum of the daily volume of the component stocks for the month.