Shows what a misleading factor it is.
Perhaps you would enjoy reading this from the Wall Street Journal money flow pages:
Incidently, quote com indicated that mf was pos 24.7 MM and wsj which does MF blocks and indiviual trades (up/down) was
Microsoft 45.75 -2.23 26.93 105/100
Adapted from "Journal Adds Money Flow Data, A New Stock-Trading Indicator", by Grep Ip and Jim Hyatt, The Wall Street Journal, October 5, 1998.
The Money Flow indicator represents "money flows" and measures the relative buying and selling pressure each day on share prices. Money-flow data are used by many technical and some fundamental analysts to discern what the "smart money" is doing, and whether price trends are sustainable. The table compares the dollar value of "uptick" trades with the dollar value of "downtick" trades. An "uptick" trade is one at a higher price than the previous trade, while a "downtick" trade is one at a lower price than the previous trade. The money-flow dollar value is computed by multiplying the price by the number of shares traded. And the net gain or decline of the two figures at the end of the day is the "money flow" for that stock or groups of stock.
In addition, the table separates money flow for block trades (trades of 10,000 shares or more) from nonblock trades for four major stock indexes. Blocks reflect trading by institutional investors.
The measure is intended to indicate whether there is more investing activity at higher or lower prices for securities. For a simple example, a stock might have five trades at, in order, $10, $10 (no change), $11 (uptick), $9 (downtick), and $10 (uptick). It would end those trades unchanged in price. But if 100 shares traded at $11, then 1,000 shares at $9, and then 100 shares at $10 at the close, the uptick money flow would be $2,100 and the downtick money flow would be $9,000. The net inflow for those trades would be $2,100 minus $9,000, or a net negative $6,900, indicating more activity at lower prices.
This suggests that despite the flat price trend, sellers were acting with more conviction than buyers, which is negative for the stock's future trend.
"Upticks and downticks seems to give you some advance on price action," says A.C. Moore, a technical analyst at Dunvegan Associates. "We use it as a reality test. We've seen in the past years, markets that go up and [become] overbought but when the money flow is positive, it just busts through." Likewise, an oversold market can continue to drop when money flow is negative, he said.
The intuition behind money flows is that "For every buyer there's a seller, but they may not agree on price, so it's the urgency of the purchase or sale that's the determining factor: that's what encourages the uptick or downtick," says Mr. Moore. Thus, a greater volume of stock changing hands on an uptick indicates the buyers are being relatively more aggressive at accumulating stock than the sellers are at dumping it. The more-aggressive investors can be expected to carry the trend. But as with any indicator, those investors may be wrong and money flows can thus give a wrong signal.
Laszlo Birinyi, president of Birinyi Associates and a consultant to Deutsche Bank Securities, says money flow is "not an approach you should use unilaterally. Whatever your process is, this is the final screen." Mr. Birinyi says money flows are most useful when they identify divergences: stocks with rising prices but negative money flow, or falling prices with positive money flow. Both situations often precede a reversal in the price trend, he says. Likewise, positive money flow can confirm a rising price and negative flow a falling price.
Mr. Birinyi, who uses money flow to pick stocks, says he looks for a divergence to last two weeks, and finds that is a reliable indicator for the next three-to-six-months' period. Mr. Birinyi says he prefers to see both block money flows, which reflect large institutional trades, and nonblock flows, which reflect individuals and some smaller institutions and brokers, pointing in the same direction.
The Wall Street Journal's report gathers trade-by-trade information using the composite pricing reports from the various exchanges. Daily money flows are calculated for the issues in the Dow Jones Industrial Average, the Dow Jones U.S. Total Market Index, the Standard & Poor's 500-stock index and the Russell 2000 index, a measure of small-market-capitalization issues. In addition, individual issues with the largest net up/or/down money flow for the day are tallied. The report also gives the ratio of positive to negative money flow.
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