McClellan calls the rally: the sweetest advance runs from fear into the end of 2027

What if the sweetest part of the rally has not happened yet, and the bears just left their den too early? Celebrated technician Tom McClellan answers without hesitation: he is very bullish right now. The slide from the August highs into the September lows produced enough fear to mark an inflection, and the turn is higher from here; a bottom need not look like the letter V, a flat bottom that grinds sideways before rising counts as a bottom too.

The conversation is hosted by economics publisher Hector Chamizo in a recording dated September 22, with McClellan as guest. The surname is familiar to indicator readers: his parents built the oscillator and summation index in 1969, and he modernized the framework with ratio-adjusted versions. Logarithmic S&P 500 charts, debt balances and sentiment polls carry the show, and every thread ties into one claim, that fear is fuel rather than a finale.

The bear file: breadth, liquidity and valuation

Weak market breadth opens the bear file. The headcount of stocks joining the advance is uninspiring, yet McClellan reads it as delayed strength rather than collapse, expecting breadth to repair quickly in the weeks ahead. According to SentimenTrader data, Hindenburg and Titanic signals bunching in recent months despite index highs form a rare cluster pointing to weakness beneath a strong headline surface.

The second item comes from liquidity: the quiet end of the fifth round of easing. The Fed never announced it loudly, but Treasury buying stopped and money flowing into the banking system slowed. McClellan admits this hurts, yet argues other liquidity sources can rescue the scene. FederalReserve balance-sheet data confirm the quiet tightening in the central bank's bond portfolio, and that detail stands as the most concrete prop of the bear case.

The third item is valuation: the market is expensive on almost any yardstick. McClellan does not deny it; he only notes that expensiveness is a weak timing tool, since markets can stay expensive for years. According to GuruFocus data, a Shiller CAPE ratio above 41 confirms valuations sit clearly above their historical averages, which strengthens the hand of the cautious investor.

The calendar favors bulls: the third-year effect

Has the correction already happened? The answer is crisp: whatever correction was due has been seen, and the transition points higher. The logic is the calendar: counting from November 1, markets enter the third year of the presidential term, and statistically those years close higher nearly every time. The first two years drift sideways while the third enjoys a tailwind, a setup favoring bulls into the end of 2027. According to the McOscillator presidential-cycle analysis, third years close higher almost every time outside the Great Depression and war years.

The objection is ready-made: the second year already ran hard, so have the third year's gains been pulled forward? McClellan argues the reverse: a market that stays strong when it is supposed to be weak must be a genuinely strong market, and it should run faster into the seasonally strong stretch. Earnings inflated by the AI narrative are real, but in his view they do not cancel the cycle, they only enlarge the bill that may arrive after 2028.

The margin-debt clock points to 2028

The boldest chart overlays the margin-debt-to-GDP ratio on the logarithmic S&P 500. Balances of investors buying stock with borrowed money swell with prices; the raw number is a parabolic blur, while dividing by national output sharpens the picture. According to FINRA statistics, customer margin-account debit balances topped 1.45 trillion dollars as of August 2026, planting the flag in record territory and revealing the scale of leverage appetite.

The ratio prints a major peak about every seven years, coinciding with equity peaks, and FINRA's monthly series reaching back to 1997 is ideal for tracking the rhythm. The next peak falls due in 2028, two years out. The level is high but the time is not yet up, so this chart does not contradict third-year optimism. According to the GuruFocus compilation, margin debt relative to national output sits at 4.1 percent, clearly above its long-run average near 3 percent. Debt will swell further, and the 2028-2029 unwind will hurt that much more.

The ratio-adjusted summation index is the 1969 family legacy in present tense. Instead of raw advance-decline differences it tracks exponential averages of proportional differences, neutralizing changes in the number of listed issues. Readings above +500 mean abundant liquidity, a rocket's escape velocity ; this summer the index failed to hold that line, flashing a warning even as prices refused to fall. According to StockCharts educational notes, the ratio-adjusted summation index stands as a classic power gauge for whether a rally has reached escape velocity.

The Hindenburg file comes off the bear shelf too: nine signals since early in the year. Blind mathematician James Mica built the gauge more than 30 years ago by improving Gerald Appel's split-market sell signal. Seeing many new highs alongside many new lows on the same day is abnormal; it means the market is fractured. McClellan is candid: this signal appears at every major top but also at other times, sometimes crying wolf. In his judgment the August-September window has closed and the calendar now turns bullish.

Fear, small caps, gold and Bitcoin

The retail sentiment poll is the emotional seal on the bull case. The AAII survey of non-professional investors shows bears outnumbering bulls with the bull-bear spread negative, a picture unseen for months and treated as a classic bottom marker. When the crowd turns fearful during a selloff, the bottom is usually already in. According to the AAII sentiment survey archive, weeks in which bears outnumber bulls among individual investors historically draw a fear map that coincides with important price bottoms.

The AI-bubble question places McClellan between extremes: yes, too many firms are racing to build rival AI platforms; a century ago America had 300 carmakers and now holds four or five. Consolidation, failures and mergers look unavoidable, yet AI multiplies human productivity as a magnifier , lifting output and profits. Job fears are overdone: you keep the worker who becomes more valuable and do more things with that person, even if the path runs bumpy rather than straight.

Small caps may be the quiet opportunity of the next 12 to 18 months. The logic runs through the yield curve: as the gap between 10-year and 3-month yields steepens, liquidity grows abundant, and the most liquidity-sensitive corner is small caps. McClellan shifts the spread forward by 15 months and lays it over Russell 2000 strength versus the Russell 1000; the echoes line up. According to the McOscillator yield-curve study, steepening in the 10-year minus 3-month gap shows up about 15 months later in the relative strength of small caps.

The verdict on gold is enthusiastic but time-boxed: bullish into early 2028. The eight-year cycle divides into a three-year up phase and a five-year down phase, with the up leg ending around January 2028; early buying from China and central banks made the first stretch powerful, while the rest should run calmer. According to Gold.org research, accelerated central-bank buying since 2022 has become the structural pillar of gold demand, and that picture reads in favor of the metal. On Bitcoin, McClellan says he is no true believer, yet he stands with the non-commercial traders holding record net long futures positions. According to FuturesBench data, the smart-money group's net long position in Bitcoin futures has reached record territory, and that picture supports further upside.