V.11:2 (61-69): SIDEBAR: MONEY FLOW INDICATOR
Product Description
MONEY FLOW INDICATOR
The money flow indicator is based on the concept that the large-volume single trades are much more important than smaller-share trades. For example, if a stock trades down one tick on 200 shares and then the next trade is an uptick on 12,000 shares, then the large buyers are aggressively purchasing the stock. The opposite holds true for a negative indication. A stock that trades up a tick on 100 shares and the next trade is down a tick with 11,000 shares is being sold by large traders. The volume of shares traded on upticks is summed and the volume of shares traded on downticks is subtracted. The cumulative total for the day of every trade's volume is then plotted.
Birinyi Associates' money flow classification system ranks stocks from 5 to 1. A 5 is given to stocks with ongoing, persistent accumulation. Both Delta Airlines (DAL) and Texas Instruments (TXN) are examples (Figures 1 and 2). Not quite as positive are the issues coded 4. These are stocks where the buying may not be continuous, as well as stocks that are declining but the decline is not accompanied by selling. That the money flow is neutral while an issue is decreasing in price is a plus. Recently, Dana (DCN) retail trades and American Express' (AXP) block trades have had this pattern (Figures 3 and 4). Neutral stocks are coded as 3. These are issues where the flows and the price are generally coincident and buyers do not buy on weakness and sellers do not sell into strength. These issues should be market performers and would be another version of a hold opinion. In mid-October 1992, Dow Chemical's (DOW) nonblock trades were classified 3, while Goodyear Tire (GT) had been for most of 1992 (Figures 5 and 6).
The money flow indicator is based on the concept that the large-volume single trades are much more important than smaller-share trades. For example, if a stock trades down one tick on 200 shares and then the next trade is an uptick on 12,000 shares, then the large buyers are aggressively purchasing the stock. The opposite holds true for a negative indication. A stock that trades up a tick on 100 shares and the next trade is down a tick with 11,000 shares is being sold by large traders. The volume of shares traded on upticks is summed and the volume of shares traded on downticks is subtracted. The cumulative total for the day of every trade's volume is then plotted.
Birinyi Associates' money flow classification system ranks stocks from 5 to 1. A 5 is given to stocks with ongoing, persistent accumulation. Both Delta Airlines (DAL) and Texas Instruments (TXN) are examples (Figures 1 and 2). Not quite as positive are the issues coded 4. These are stocks where the buying may not be continuous, as well as stocks that are declining but the decline is not accompanied by selling. That the money flow is neutral while an issue is decreasing in price is a plus. Recently, Dana (DCN) retail trades and American Express' (AXP) block trades have had this pattern (Figures 3 and 4). Neutral stocks are coded as 3. These are issues where the flows and the price are generally coincident and buyers do not buy on weakness and sellers do not sell into strength. These issues should be market performers and would be another version of a hold opinion. In mid-October 1992, Dow Chemical's (DOW) nonblock trades were classified 3, while Goodyear Tire (GT) had been for most of 1992 (Figures 5 and 6).
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