Sunday, December 14, 2008

Money Flow Update for December 14th

Recall that money flow takes the dollar volume of each stock transaction and adds it to a cumulative total if that transaction occurred on an uptick; subtracts it from the total if it occurred on a downtick. The idea is that we want to see if volume is primarily lifting offers (i.e., occurring on upticks, indicating buying interest) or hitting bids (i.e., occurring on downticks, indicating selling pressure). When we add all the transactions for the stocks in the Dow Jones Industrial Average, we get a sense for whether large cap market sentiment is dominantly bullish or bearish--and whether that sentiment is shifting.

In the chart above, we see that the Dow (DIA; blue line) remains in a multi-day range, but money flow (pink line) has now moved to fresh bear market lows. This suggests that large market participants have not yet sustained buying interest in the large cap issues of the Dow.

Over the past week, money flows were notably positive for the health care and energy sectors. Negative and particularly weak money flows were seen in the financial and technology sectors. Over the past month, financial, technology, consumer services, and industrial sectors have seen the most negative money flows. Consumer goods, energy, utilities, telecommunications, and health care have seen modestly positive flow numbers over the month.

When I look at both sector money flow and trend behavior, I'm underwhelmed by the behavior of the financial sector, given the unprecedented government resources devoted to their rescue.

Reminder: Money flow numbers are updated before each trading day via the Twitter app. Tomorrow AM I will post the weekly indicator update.


hbernst963 said...

How reliable is this money flow indicator in leading the market higher/lower?

Mack said...

I noticed that the QQQQ was stronger than the DIA and SPY last week...XLF continued to be we need to see the financials lead to take us higher?

Paris H said...

what is this moneyflow indicator really showing ? Does this refer to the markets overall liquidity?

Brett Steenbarger, Ph.D. said...

Hi hbernst963,

I don't rely on any indicator by itself, but instead look at the weight of evidence among many indicators. The weakness in money flow preceded the bear market and has been helpful in keeping investors out of the market this past year.


Brett Steenbarger, Ph.D. said...

Hi Mack,

No, I don't think it's mandatory that the financials lead any rally, but we do need to see broader strength among the sectors to sustain an uptrend.


Brett Steenbarger, Ph.D. said...

Hi Paris H,

Money flow is really a volume weighted measure cumulative TICK measure and, as such, assesses sentiment. I'll be posting on the topic shortly with my NYSE TICK posts.