The NASDAQ market is full of the more volatile stokes so it should react sooner then the other markets. The McClellan Oscillator $NAMO is in black and red on the bottom of the chart.
The McClellan Oscillator red and black on the chart bottom is a breadth indicator derived from Net Advances, which is the number of advancing issues less the number of declining issues. Subtracting the 39-day exponential moving average of Net Advances from the 19-day exponential moving average of Net Advances forms the oscillator. As the formula reveals, the McClellan Oscillator is a momentum indicator that works similar to MACD. McClellan Oscillator signals can be generated with breadth thrusts, centerline crossovers and divergences.
The Summation Index (green line top of chart) is simply a running total of the McClellan Oscillator values. Even though it is called a Summation Index, the indicator is really an oscillator that fluctuates above and below the zero line. As such, signals can be derived from bullish/bearish divergences, directional movement and center-line crossovers. A 5 day moving average (red) is applied to identify upturns and downturns.
The Summation Index rises when the McClellan Oscillator is positive and falls when the McClellan Oscillator is negative. Extended positive numbers in the McClellan Oscillator cause the Summation Index to trend higher. Conversely, extended negative readings cause the Summation Index to trend lower.
Because of its cumulative nature, the Summation Index is a slower version of the McClellan Oscillator. The index crosses the zero line fewer times, forms divergences less often and produces fewer signals in general. Whereas the McClellan Oscillator (bottom) can be used for short-term and medium-term timing, the Summation Index (top) is generally used for medium-term and long-term timing.
This chart can be very sensitive, and traders should be concerned when the red line is over the green, even if the NASDAQ market itself has not yet sold off. However that said this indicator is less than perfect, even with this medium-term moving average, there are still plenty of signals and turns. Some signals were great, some were not and some produced whipsaws. I would not trade this indicator on its own, but it does help provide a key confirming signal when used with the other market comment indicators.