Above we see that cumulative money flow for the Dow Industrial stocks (top chart; pink line) has not been making new highs, even as the Dow (DIA; blue line) has moved to a 20-day closing high. (For an explanation of money flow, see my previous post on the topic). Monday's flow reading of +$437 million was clearly strong, and that strength was underscored by the tally of stocks making fresh 20-day highs vs. lows (1394 highs vs. 343 lows). (Note: both money flow and new highs/lows are posted prior to each trading day via Twitter). The question, however, is whether strength can attract further buying to sustain an intermediate-term rally.
As we see from the chart of the Dow vs. the four-day moving average of money flow (bottom chart), forays into positive flow territory have tended to be brief since early October. The good news for bulls is that the November lows, both in price and cumulative flow, have held on last week's weakness. If we can sustain positive flow numbers from here, it would represent the first uptrend in flow since the start of the market's decline. A return to outflow numbers would lead me to expect a return to recent rangebound action.
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6 comments:
Hi Brett,
Thanks for all your analysis. I've followed you now for several years. We even spoke over the phone back when you were a college professor.
Could you post your formula for the adjusted cumulative tick. I'd like to start charting it myself.
Thanks again for all you do.
Bob Rogers
In addition to the bearish money flow divergence we also have the major indices testing their 50 day moving averages. It will be interesting to see if the market turns back down from these levels.
The weak money flow agrees with the weak accumulation/distribution condition of the rally, which suggests we are nearing a stall point and a new sell off. The market hasn't broken out of the technical decline boundaries it's been in for many months. This is the first trip into the crossed over 50 dma since the severe selling began in early October. If the indexes fail to take up residence above the 50, there will probably be another steep drop.
Hi Bob,
I've just posted on the topic and will have a follow up shortly; thanks--
Brett
Hi Brett,
Thanks for your response.
I've been trying to replicate adjusted cumulative tick. I'm having difficulty understanding the formula.
On 12/11/2008, you reported the Cumulative TICK as being about -49,000 (from the graph
"ES vs Cumulative TICK; 12/11/08).
Using ( High + Low + Close ) / 3 gives a Cumulative TICK of -71,500
Using (( High + Low ) / 2 ) + Close) / 2 gives a Cumulative TICK of -71,837
Using ( High + Low + Close + Open ) / 4 gives a Cumulative TICK of -72,179
Each of these methods create a cumulative number which is considerably different from your -49,000.
Could it be the data provider?
The data I used is from TradeStation using 1 Minute data of $TICK starting EST 931 and ending with the 1600 time
which are 390 values summed up throughout the session. I have an indicator that produces the same values as I have on a spreadsheet for that day just to be sure I'm accurate with the data.
I can understand being off by a small amount due to data integrity of different providers or perhaps going to 1615 instead of 1600 ... BUT it does
not explain the large difference.
Can you help? Am I using an incorrect formula?
Thanks again,
Bob
Hi Bob,
I've heard from several people about discrepancies in TICK with the Trade Station data. Also, your starting value for the calculation might be different from mine, since I keep a long term running total--
Brett
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