INTERVIEW
Our focus is to get a forecast of what the market is going to do. We tend not to focus on individual stocks.
Scion Of Technical Science
Tom McClellan And The Oscillators
Tom McClellan, the son of technicians Sherman and Marian McClellan, has done extensive analytical spreadsheet development for the stock and commodities markets on his own over the years, including the synthesis of the four-year Presidential cycle pattern. He has fine-tuned the rules for interrelationships between financial markets to provide leading indications for critical market and economic data.
Tom studied aerospace engineering at the US Military Academy at West Point and served as a helicopter pilot for 11 years. He began his own study of market technical analysis while still in the service, when he discovered ways to expand the use of his parents’ indicators to forecast future market turning points. He views the movements of prices in the financial market through the eyes of an engineer, which allows him to focus on what the data really says rather than interpreting events according to the conventional wisdom used by other analysts. In 1993, he left the Army to join his father in pursuing a new career using this type of analysis.
In 1995 they launched their newsletter, the McClellan Market Report, covering the stock, bond, and gold markets. They utilize the indicators they have developed to present their view of the market’s structure as well as their forecasts for future trend direction and the timing of turning points. Their Daily Edition was introduced in 1998 to give subscribers updates on their indicators and also provide market position indications for stocks, bonds, and gold. Their subscribers range from individual investors to professional fund managers. Tom serves as editor of both publications and runs the newsletter business from Lakewood, WA, and can be reached at www.mcoscillator.com.
Stocks & Commodities Editor Jayanthi Gopalakrishnan and Staff Writer Bruce Faber interviewed Tom McClellan via telephone on May 3, 2010.
Tom, the McClellan name is famous among technical analysts. Tell us how influential your parents have been in your interest in the financial markets.
You have to think back to the 1960s. My parents, Sherman and Marian, started doing this work in 1969. This was before anyone had a personal computer or handheld calculator. Computers lived in giant rooms with reel-to-reel tape machines and teletype terminals. Data entry consisted of punching holes in Ibm cards and feeding them into a hopper.
But my father got interested in the financial markets long before that, in the 1950s. He went to what’s now called Claremont McKenna College to study business and economics. By the early 1960s he was managing a family farm in Illinois, and the chief management decision was to figure out when to sell the corn grown there. He learned that if you sold the corn in October, when everybody else was trying to sell corn, prices were really low. The secret was in drying the corn and then storing it until May to July of the following year when all the hog producers were running low and needed to buy more corn. He figured out that was when he could get a higher price.
He had never spent much time on a farm before then, so to understand how corn prices worked, he got some charts to look at the history of corn prices. That was how he got interested in the financial markets. At the time there was a television station, Kwhy, in Los Angeles, where my parents lived. It was a Uhf station that broadcast business news long before there was Cnbc or Fox Business News. This station pioneered a lot of the standard financial reporting we see today, including the ticker at the bottom of the screen and saying, “Let’s go to the boards” to look at the prices. The station had an end-of-day charting program that my parents watched. That was revolutionary information in the 1960s, when fundamentals were everything and anybody caught with a chartbook at work risked getting fired for practicing voodoo. This was the kind of environment my parents were in when they started out.
One of the things they got interested in was the work of Pete Haurlan, who ran a stock market newsletter service called The Trade Levels Report. Haurlan, who had access to a computer, worked for Jet Propulsion Laboratory (Jpl). He was one of the first people ever to use a computer for stock market analysis. Haurlan was interested in advance-decline statistics because in the early 1960s there was a huge divergence that marked the top of the market in 1961 just ahead of the bear market of 1962. So the advance-decline statistics were suddenly popular. My parents wanted to see if they could understand it better. They used some of the tools like the exponential moving averages (Emas) that Pete Haurlan was a big fan of. Among the tools were the 10% trend and the 5% trend, things we now call a 19-day and a 39-day Ema. Haurlan used each of those independently. The key insight that my parents had was what happens when you look at the difference between those two moving averages. That was not something that anybody had done before in technical analysis. This was in 1969.