By Tomi Kilgore
Tom McClellan loves doing what financial advisers tell you not to do. He tries to time the financial markets — to the exact day, if his charts align just right.
At the moment, they are telling him to be bullish on the stock market for all of his trading time frames, including those that trade every few days, weeks and months. But bulls should be ready to flee, as soon as this week.
That’s because McClellan said his timing models suggest “THE” top in stocks will be hit some time over the next week. He expects “nothing good for the bulls for the rest of the year,” he said in a phone interview with MarketWatch.
McClellan doesn’t have a strong view on how far stocks could fall, just that it will probably be an “ugly decline” lasting into early 2016. The good news is that his models suggest it should not be as bad as the 2007-to-2009 bear market, when the S&P 500 Index SPX, -2.11% plunged as much as 57%, or the 2000-to-2002 selloff when the index plummeted 49%.
“I try to get the direction right, and I let the magnitude take care of itself,” McClellan said.
From his home in Lakewood, Wash., about 10 miles outside of Tacoma and nearly 3,000 miles from Wall Street, McClellan scours over what seem to be hundreds of charts covering the stock, commodities and bond markets, and even those following weather patterns, architecture billings and sunspot activity.
The West Point grad and former Army helicopter pilot also relies heavily on the widely used technical indicator that bears his surname, the McClellan Oscillator (MCO). Developed in 1969 by his parents, Sherman and Marian McClellan, that indicator can be used to determine overbought and oversold conditions and gauge the flow of money into and out of the market, according to the Market Technicians Association’s Knowledge Base.
He’s always looking for patterns that could help him predict the direction and the timing of future market moves. Then he writes about those patterns in daily and bimonthly newsletters, as well as in a weekly notice on one chart in particular.
Currently, McClellan sees a number of bearish patterns warning that the big one is likely to hit Wall Street very soon, he reported. For one, the advance-decline line, which tracks the number of stocks participating in a trend, started declining nearly four months ago.
The NYSE’s advance-decline line has been falling since April