Time Frame: Medium-Term | Update Schedule: Daily | Source: NYSE
Construction:
The Summation Index is based off worked pioneered by Sherman and Marian McClellan and is currently carried on by their son Tom (search the web for "McClellan Oscillator" for more background). It is a longer-term look at the momentum of the underlying breadth of the market, adding each day's McClellan Oscillator reading to the day before.
When it is above zero, momentum is positive; below zero, it is negative. It also works as an overbought/oversold indicator when it pushes above +1000 or below -1000, respectively, though it is less effective in that sense than the shorter-term Oscillator is. During times of major trend change, the indicator will often hit an extreme, then the market will fail to react, suggesting a change in the market's tone and a higher probability that the overall trend is changing, and it is quite effective in this way.
It is also useful to look for divergences, when stocks push to new highs, but the Summation Index continually reaches lower highs (this is bad for stocks), or when stocks hit new lows but the Summation Index reaches higher lows (this is good for stocks).
