What is the McClellan Oscillator based on?

The McClellan Oscillator is based on the difference between the number of advancing issues and declining issues in a market, calculated over a specific time period. This mathematical approach uses a short-term and a long-term exponential moving average of the net advances, which are the daily tally of stocks that advance relative to those that decline. By comparing these two moving averages, the McClellan Oscillator provides insights into market momentum and breadth. High readings typically indicate strong positive momentum, while low or negative readings can signal weakening momentum or bearish conditions. This focus on advancing and declining issues makes it a valuable tool for gauging overall market health and trends.

Other options, while relevant concepts in technical analysis, do not accurately define the McClellan Oscillator's basis. For instance, average price, volume trends, and overall market sentiment are useful indicators in their own right but do not specifically pertain to the method by which the McClellan Oscillator functions.