Friday, May 04, 2007

Stockfest: Strong Flows in MER

Here we see Merrill Lynch (MER; blue line) from January, 2006 to the present. Note that the 20-day money flows (pink line) have been on a steady rise, remaining positive throughout the entire period. We can also see patterns familiar from prior money flow posts, such as the tendency of flow rates to top and bottom ahead of price during intermediate-term swings. Observe how flow broke out to new highs just ahead of the price breakout in October, 2006. Flows also remained positive even during the sharp market correction of late February/early March.

Since that time, flows have vaulted to new highs, though we're not yet seeing fresh highs in the stock price. This inefficiency tends to precede corrections; note, too, that flows have put in a momentum high. For these reasons, it would not surprise me to see consolidation in MER, even as price may move higher in the short run following the momentum peak in flows.